Banking Without Branches

Banks’ branch networks are contracting rapidly in many countries. We study the effects of these large-scale branch closures on firms’ access to credit and real economic activity. Our empirical setting is Sweden, where two thirds of all bank branches have closed in the past two decades. Using a shift-share instrument and micro data comprising the near-universe of Swedish firms and bank branches, we document that corporate lending declines rapidly following branch closures, mainly via reduced lending to small, collateral-poor, and risky firms. The reduced credit supply has substantial real effects: local firms experience a decline in employment and sales and an increase in exit risk after branch closures. Our results thus demonstrate that the disappearance of bank branches have far-reaching implications for the economy.