Why Bank Business Models Matter for SME Credit Rationing∗

This paper conducts the first empirical study analyzing the effects of bank business models on small and medium size enterprises (SMEs) finance. Using a micro data approach, I analyze a unique, supervisory dataset with different loan maturity applications from France that allows to account for time-varying firm heterogeneity in loan demand and bank’s balance sheet strength. Whereas most studies ignore the bank’s asset allocation strategy, I show that the firm’s probability of being short-term credit rationed is higher with banks that exhibit trading abilities. Importantly, bank capital ratio turns out to have an opposite effect on short-term credit rationing according to bank business models. Well-capitalized trading banks (resp. non-tradingbank) are less (more) likely to grant cash credit to SMES. My results shed new light on a negative externality related to security investments of tradingbanks involved in a zero lower bound universe. JEL codes: D45, E51, G21, G24, G28.