Impact of Bank Closings on Credit Extension to Businesses in Low-Income and Minority Neighborhoods

Datos Bibliográficos

ID10429682
AutoresMaude Toussaint‐Comeau (0000-0002-8232-6789, Federal Reserve Bank of Chicago, IL, USA, autor de correspondencia), Yi David Wang (0000-0002-4923-0590, University of International Business and Economics, Beijing, China), Robin Newberger (Federal Reserve Bank of Chicago, IL, USA), Robin G Newberger (Federal Reserve Bank of Chicago)
Año2019
Volumen47
Número1
Páginas20-49
Fecha de publicación2019-11-14
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaThe Review of Black Political Economy (JOURNAL)
Identificadores de la revistaISSN: 0034-6446 • E-ISSN: 1936-4814
EditorialSAGE Publishing (PUBLISHER • US)
DOI10.1177/0034644619885343
OpenAlexW2984829928
IdiomaEN
Citas recibidas4
Referencias citadas20

New research is surfacing since the last financial crisis, not only to help predict risks associated with bank failures but also to assess the impact of bank failures on the economy and local geographies. However, although bank failures occurred mostly among small (community) banks, much less is understood regarding how the closing of mission-oriented community banks, or minority-owned banks, affect traditionally underserved markets, areas such failed banks were designed to serve. We conduct an empirical investigation testing the effects of bank closings on local areas. We find that, as a result of bank closings, there are significant frictions with small businesses obtaining credit, which appear to be potent enough to cause cumulative declines in aggregate small business lending in neighborhoods, lasting up to 3 years. We also find evidence that such lending shocks have repercussions on small business growth. We find that the closing of large banks also has an impact on small business lending, consistent with previous research, which has shown that as small businesses lose credit from large banks, they are not able to switch easily to other banks, leading to a decline in aggregate lending in local areas. We find this to be true for low- or moderate-income (LMI) and minority businesses/neighborhoods. We also find that the failure of community development financial institutions (CDFIs) and minority depository institutions (MDIs) leaves a credit void that may not automatically be filled in LMI and minority neighborhoods

Bank credit · Business · Closing (real estate · Financial system · Small business · Banking stability, regulation, efficiency · Finance · Housing Market and Economics · Microfinance and Financial Inclusion