Nothing special about banks: Competition and bank lending in Britain 1885-1925

We investigate the impact of increasing bank concentration on bank loan contracts in a lightly regulated environment. This environment allows us to abstract from possible confounding effects of regulation to focus on the “pure” effects of competition on bank lending. We study over 30,000 British bank loans over the period 1885 to 1925. Borrowers in counties with high bank concentration received smaller loans and posted more collateral than borrowers in low concentration counties. In high concentration counties, the quality of loan applicants had improved, which suggests that banks restricted credit, rather than that the quality of loan applicants had worsened.