This dissertation consists of two essays studying how the exposure of banks to real estate declines impacted the availability of credit and local employment growth during the Great Recession, and a third essay studying how the location patterns of banks within MSAs impacts market power arising due to spatial frictions in bank lending. The first chapter studies how banks respond to falling house prices within their market. I show that banks in MSAs with falling house prices contracted credit. However, these declines were concentrated in banks which were either closer to their capital constraint or more exposed to the construction sector, indicating that real estate shocks impacted the supply of credit instead of demand. The second chapter extends this work to show that these bank real estate losses had large effects on employment. Counties whose banks were exposed to falling house prices elsewhere along their branch network experienced declines in lending and employment. These employment declines were most pronounced in bank dependent firms and firms closer to exposed banks. Overall, I find that bank lending contractions due to falling house prices explain over half of the relationship between real estate shocks and employment declines and 39% of the decline in employment during the Great Recession. Finally, Chapter 3 justifies my emphasis on local banking markets. I show that bank mark-ups respond to the availability of competitors within 5 miles of their branches instead of the more conventionally used MSA level market definition. This suggests a limited substitutability between nearby banks and those which are further away, explaining the highly localized effects I find in the previous chapter.
Glancy, David P.,
"Essays on Local Banking Markets and the Capital Crunch During the Great Recession"
(2016).
Economics Theses and Dissertations.
Brown Digital Repository. Brown University Library.
https://doi.org/10.7301/Z0PV6HSP
