Do Bank Branches Still Matter for Local Economic Activity?

Category: Money and Macro Brown Bag Seminar
When: 08 May 2019
, 14:00
 - 15:00
Where: HoF, DZ Bank (E.20)
Speaker: Olga Gorbachev (University of Delaware, and with Maria Jose Luengo-Prado): Joint with Finance Brown Bag


An extensive literature documents that physical bank branches are still important for credit access, especially in information intensive environments. Previous work documents that areas with branch closures see reductions in small business lending and to a smaller extent mortgage originations.

In this paper, we study to what extent changes in the number of branches impact local economic activity. Using mergers between two large banks as instruments for changes in the number of bank branch, we confirm that small business lending drops but mortgage originations are unaffected in areas exposed to an overlapping network of the merging banks.  As the  lending relationship severs, small businesses that cannot get funding from local banks might resort to sources such as credit cards or personal loans. Using data from a large credit bureau, we document what happens to consumer and personal loans in areas exposed to these mergers. We then study whether the change in credit availability has real implications for the local economy. In particular, we study how it impacts the number of local establishments, their size distribution, and ultimately,  local employment, wages, and their growth.