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The Annals of Regional Science

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28-05-2022 | Original Paper

Decomposing local bank impacts with demand thresholds

Authors: Anders Van Sandt, Craig Wesley Carpenter, Charles M. Tolbert

Published in: The Annals of Regional Science | Issue 2/2023

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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.

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These definitions apply to both banking and non-banking businesses and extend from Carpenter et al. (2019) and Mencken and Tolbert (2018a).

We examine 3-digit North American Industrial Classification System (NAICS) coded industries, which NAICS defines as “subsectors,” but we use the more colloquial term “industry” throughout this article rather than “subsector”.

This article follows the U.S. Census Bureau convention of using the term “establishment” to refer to a physical location or “address” where economic activity takes place, and the term “firm” to refer to a collection of one or more establishments under a common ownership structure.

Author calculations from https://www.fdic.gov.

The same-sector location quotient represents the share of commuting zone employment concentrated in a particular sector divided by the share of national employment concentrated in that sector. Employment within the industry being analyzed is subtracted out of both counts to avoid simultaneity.

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Title: Decomposing local bank impacts with demand thresholds
Authors: Anders Van Sandt
Craig Wesley Carpenter
Charles M. Tolbert
Publication date: 28-05-2022
Publisher: Springer Berlin Heidelberg
Published in: The Annals of Regional Science / Issue 2/2023
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-022-01148-4

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