Commercial lending and distance: Evidence from Community Reinvestment Act data

A number of large banking organizations have substantially broadened the distances at which they are willing to extend commercial loans, but there is also evidence to suggest that this has occurred primarily at the high side of the distribution of lending distances. In this paper, we employ a new source of data to examine the relationship between lending decisions and distance between lender and borrower for that part of the distance distribution where, arguably, most of the competitive interactions among lenders still occur. We report three basic findings: (1) distance operates as a deterrent to lending, even within areas traditionally defined as local markets, (2) distance is more of a deterrent for small banks than for larger organizations, even within these areas, and (3) for those commercial loans made within areas currently treated by regulators as markets, distance has not been declining in importance. Indeed, a preponderance of the evidence suggests that it is becoming, if anything, more of a factor. Possible explanations and policy implications are discussed.