This paper analyzes whether from the end of 2005 to the first half of 2012 bank localism influenced the dynamics and the quality of loans to Italian firms. To this aim, this paper proposes a new definition for local banks that, respect to the traditional classifications employed in literature, has the advantage to classify medium and small banks according to the number and the size of markets where they operate, regardless banks’ institutional category and size. The main result is that, after controlling for demand elements and the initial bank balance sheet characteristics, credit supply was influenced by banks’ size while bank localism was not significant. During the crisis, the loan default rate was substantially higher for medium and small banks; among these banks, for local banks the deterioration in credit quality was smaller with respect to non-local banks.
