Banking structure and regional economic growth: lessons from Italy

Following the literature on the comparative advantage of small versus
large banks at lending to small businesses and in light of the worldwide decline in
the number of intermediaries that specialise in this type of lending associated with
deregulation in the banking industry, we examine the role that specific categories of
banks have played in the context of Italy’s regional economic growth. Over the
estimation period, 1970–1993, which ends in the year of full implementation of the
banking reform that introduced statutory de-specialisation and branching liberalisation,
Italy featured not only a substantial presence of small- and medium-sized
enterprises (SMEs) in the real sector, as is still the case, but also a large and
heterogeneous set of credit institutions with different ownership, size and lending
styles. Exploiting these peculiarities we study the role of specific intermediaries
and gather indirect evidence concerning the likely effects, ceteris paribus, of the
current consolidation processes. The main findings, stemming from panel regressions
with fixed effects, are as follows. The overall size of the financial sector
has a weak impact on growth, but some intermediaries are better than others:
cooperative banks and special credit institutions play a positive role, banks of
national interest (basically large private banks) and public law banks (governmentowned
banks) either do not affect growth or have a negative influence depending
on how growth is measured. Cooperative banks were mostly small banks and
special credit institutions were all but large conglomerates with standardized credit
policies, hence our results lend support to the current worldwide concerns of a
reduction in the availability of credit to SMEs resulting from consolidation and
regulatory reforms in the banking industry