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It’s a wonderful loan: local financial composition, community banks, and economic resilience

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  • Petach, Luke
  • Weiler, Stephan
  • Conroy, Tessa

Abstract

Using data on the composition of the banking sector for U.S. counties, we explore two channels through which banking composition may impact county-level development outcomes: a direct channel through employer establishments, and an indirect channel through a county’s resilience to macroeconomic shocks. An increase in community bank presence has a direct effect on rural and micropolitan counties via faster employment growth, but no statistically significant direct impact on establishment births. However, we show community banks had a significant impact on regional economic resilience during the Great Recession. Counties with greater pre-recession community bank presence experienced smaller declines in employment growth and establishment births during the recession—an effect that is most pronounced for small establishments in rural counties. In contrast, home prices were substantially more resilient in metropolitan areas that had concentrations of local capital in the form of community banks.

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  • Petach, Luke & Weiler, Stephan & Conroy, Tessa, 2021. "It’s a wonderful loan: local financial composition, community banks, and economic resilience," Journal of Banking & Finance, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:jbfina:v:126:y:2021:i:c:s0378426621000352
    DOI: 10.1016/j.jbankfin.2021.106077
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    More about this item

    Keywords

    Community banking; Economic resilience; Regional economic development; Information asymmetries;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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