Distance, rating systems and enterprise finance

Viac o knihe

In response to the credit crunch during the global financial crisis of 2007-2008, there have been calls for the re-establishment of regional banks in the UK and beyond. Germany's regional banking system, comprising over 1,400 small and regional savings and cooperative banks, is often viewed as a model for financing small and medium-sized enterprises (SMEs). However, the rise of ICT-based scoring and rating systems raises questions about the necessity of proximity in reducing information asymmetries between banks and SMEs, potentially undermining the advantages of regional banks. This work utilizes novel ethnographic findings from participant observation and interviews to provide insights into regional savings banks, comparing their SME lending practices with those of large commercial banks in Germany. The findings are contextualized within the three-pillar German banking system, addressing bank regulation, structural developments, and enterprise finance. An original theoretical approach merges classical banking theories with insights from social studies of finance. The research reveals that credit granting distances vary based on rating results, with large banks delegating credit authority to local staff, thus challenging regional banks' proximity advantages. Nonetheless, through case studies of SME lending, it demonstrates regional banks' ability to leverage proximity in screening and monitoring financially distressed SMEs, u