Current theoretical and empirical research suggests that small banks have a comparative advantage in processing soft information and delivering relationship lending. The most comprehensive analysis of this view found using US data that smaller SMEs borrow from smaller banks and smaller banks...

Using the real estate lending share of the bank's loan portfolio at the peak of the land-price bubble as an instrument for bank capital, we identify the impact of capital adequacy on the allocation of bank lending under the Basel regulatory framework. We find that, in Japan, a large loss of bank...