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Decomposing local bank impacts with demand thresholds

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Listed:
  • Anders Van Sandt

    (University of Wyoming)

  • Craig Wesley Carpenter

    (Michigan State University)

  • Charles M. Tolbert

    (Baylor University)

Abstract

Recent research indicates a substantial decline in the number of local banks over the past 40 years. This decline has been particularly stark in rural areas, though it extends across the rural–urban spectrum. An associated decline in relational lending is hypothesized to drive a reduction in several indicators of rural resilience. Given the association between the presence of local banks and positive economic resiliency indicators, this research takes a natural next step by using demand threshold techniques to measure the impact of local bank presence on the thresholds for manufacturing and retail businesses in specific industries. We present comparisons to the influence of local (single-commuting zone) and regional (multi-commuting zone) bank presence on both local and regional businesses to account for firm extent. Findings indicate that local banks influence establishments’ demand thresholds, though the size of the relationship varies by the establishment’s industry and firm extent, rather than rurality, as previous evidence suggests. Given these findings on the value of local banks, a resultant policy question relates to the feasibility of the preservation of local banks and if local factors can contribute to their resilience. Thus, the paper concludes with a second threshold analysis comparing the impact of local factors on the count of local and regional bank establishments themselves.

Suggested Citation

  • Anders Van Sandt & Craig Wesley Carpenter & Charles M. Tolbert, 2023. "Decomposing local bank impacts with demand thresholds," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(2), pages 333-352, April.
  • Handle: RePEc:spr:anresc:v:70:y:2023:i:2:d:10.1007_s00168-022-01148-4
    DOI: 10.1007/s00168-022-01148-4
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    References listed on IDEAS

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    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • G2 - Financial Economics - - Financial Institutions and Services
    • D0 - Microeconomics - - General

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