Ralph De Haas, Liping Lu and Steven Ongena
We interview 379 European bank CEOs to identify their banks’ main competitors. We then provideevidence on the drivers of bilateral bank competition, construct a novel competition measure at thelocality level, and assess how well it explains variation in firms’ credit constraints. We find thatbanks identify another bank as a main competitor in small-business lending when their branchnetworks overlap, when both are foreign owned or relationship oriented, or when the potentialcompetitor has fewer hierarchical layers. Intense bilateral bank competition increases local creditconstraints, especially for small firms, as competition may impede the formation of lendingrelationships.