Kwan, 1994) also argues that banks produce valuable private information about borrowers and the existence of a bank-borrower relationship increases a from's value. This literature implies that a bank failure can trigger a loss of private information and may lead to reduced credit fow. More recent literature on financial intermediation provides further support for this hypothesis by linking the strength of the bank-borrower relationship to its duration. For example, Petersen and Rajan (1994) fnd that smaller froms that build close ties to a creditor experience increases in the availability of financing. Berger and Udell (1995b) fnd that small frms with longer relationships with their financial institutions pay lower rates and are less likely to pledge collateral. These findings support the hypothesis that bank failures may lead to decreased credit availability through general financial turmoil, especially the disruption of information fow caused by severing relationships.14
Panel B of table 1 lists the states with the greatest number of failures during the sample period and where the level of fnancial turmoil may have been greatest. Although, there was a regional concentration of failures in the oil states (e.g., Texas, Colorado, and Oklahoma) during this time period, failures occurred in almost all states. Thus, regional supply and demand factors also may have affected lending growth during this time period.