Impact of Great Recession bank failures on use of financial services among racial/ethnic and income groups

Using individuals'‐level data from the 2013, 2015, and 2017 unbanked and underbanked household surveys, we examine the effect of the magnitude of bank failures in the 2008–2011 period on individuals' use of financial services in the post Great Recession period. We find the intensity of local bank failure to reduce the probability of owning a bank account and increase the likelihood of using alternative financial services (AFS). We show that those exposed to medium intensity failures were 2.3 percentage points less likely to be fully banked (own a bank account and do not use AFS) and 0.5 percentage points more likely to be unbanked (do not own a bank account and use AFS). These effects are primarily driven by blacks and Hispanics in low and medium intensity Metropolitan Statistical Areas. Our results are explained by the effect that the intensity of bank failures had on branching. Moreover, we find bank failures to intensify impediments to banking due to lack of convenient location and hours and distrust in banks, and the effect is more salient for minorities.