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Are Credit Markets Still Local? Evidence from Bank Branch Closings

Hoai-Luu Q. Nguyen

American Economic Journal: Applied Economics, 2019, vol. 11, issue 1, 1-32

Abstract: This paper studies whether distance shapes credit allocation by estimating the impact of bank branch closings during the 2000s on local access to credit. To generate plausibly exogenous variation in the incidence of closings, I use an instrument based on within-county, tract-level variation in exposure to post-merger branch consolidation. Closings lead to a persistent decline in local small business lending. Annual originations fall by $453K after a closing, off a baseline of $4.7 million, and remain depressed for up to 6 years. The effects are very localized, dissipating within 6 miles, and are especially severe during the financial crisis.

JEL-codes: G21 G34 L22 R12 R32 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/app.20170543
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