Branching Networks and Geographic Contagion of Commodity Price Shocks

Teng Wang

No 2020-034, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies the role of banks' branching networks in propagating the oil shocks. Banks that were exposed to the oil shocks through their operations in oil-concentrated counties experienced a liquidity drainage in the form of a declining amount of demand deposit inflow as well as an increasing percentage of troubled loans. Banks were forced to sell liquid assets, and contracted lending to small businesses and mortgage borrowers in counties that were not directly affected by the oil shocks. The effect is magnified when banks do not have strong community ties, but is mitigated if banks' branching network is sufficiently dispersed. I also find the decline in local credit supply cannot be completely offset by healthy competing banks' increased lending, providing fresh evidence from the perspective of bank competition.

Keywords: Bank competition; Oil shocks; Out-of-market lending; Transmission of shocks; SME lending (search for similar items in EconPapers)
JEL-codes: G20 G21 G30 (search for similar items in EconPapers)
Pages: 43 p.
Date: 2020-05-01
New Economics Papers: this item is included in nep-ban, nep-com and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-34

DOI: 10.17016/FEDS.2020.034

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