Collaborative Research: RUI: Bank type, bank market ecologies, and support of small businesses

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American banking has long denied credit to borrowers in poor and marginalized communities. Yet that system contains a striking variety of lending organizations, ranging from global corporate behemoths to community banks, credit unions and community development institutions, that embrace very different business models missions and values, and that relate to borrowers and communities, including poor and traditionally marginalized minority ones, in very different ways. This project analyzes that organizational variety and its impact in the Paycheck Protection Program (PPP) to determine how differences in lending organizations and the ecologies or mixes of lenders that populate banking markets shape–and might enhance—access to credit for small business in poor and non-white communities. Ideally suited for this study, the PPP was a federal government program that worked though the nations’ existing lenders to issue nearly 12 million loans to businesses to keep workers on payroll during the pandemic, and produced detailed data on where and to whom lenders lent.To address the impact of lender organizational form and bank market ecologies on credit flows, this project combines interviews of lenders and borrowers with multi-level quantitative analyses of a new data set on all PPP loans that links: a) data on lending by seven lender types and socio-economic conditions in 32,000 communities, with b) data on the organizational compositions of 625 regional banking markets that served those communities. These analyses contribute broadly to understanding how organization shapes inequality, while extending organizational ecology and institutional research on organizational form and complexity to new outcomes. They address a key gap in our knowledge of class and ethno-racial divides in banking and credit, integrating work in organizational studies, economic sociology and political economy on bank organization, banking systems and their economic impacts with research in sociology, law and allied fields, which extensively analyzes banking and credit as sites of discrimination and segregation, but commonly sets organizational variety in banking aside (or focus on large banks) to document broader systemic tendencies. And by identifying possibilities for greater inclusivity within American banking—and in government programs that work though that system – this project highlights new avenues for reform, including building the capacities of lenders that engage traditionally marginalized communities and altering mixes of institutions in regional markets.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.