Essays on Banking
Traweek, Virginia
2022
Abstract
Financial system access is important, especially for disadvantaged groups. I study the ways in which people interact with the financial system at a local level. In Chapter 1, I study the Freedman’s Savings and Trust Bank, a bank that catered to newly freed slaves in the aftermath of the Civil War. I study those who were most impacted by the bank’s failure. I find that violence in regions near a Freedman's bank branch lowered financial participation for black depositors but not for white depositors. Positive political events, such as the ascension of PBS Pinchback to governorship of Louisiana, increased bank participation. I also find that those depositors who stayed with the bank until failure were older, more local, less educated, and more black than the average depositor, suggesting that the costs of bank failures were not evenly borne by the depositors. In Chapter 2, I study the rural and urban divide in retail banking in the United States. Rural areas lag urban areas in economic and social measures such as income, employment, education, and health outcomes. I show that CD rates in rural areas are 17.6% higher than CD rates in urban areas. The result is robust to a variety of controls and is driven mainly by retail banking presence, as measured by log number of branches. I also test the role of trust in banks as a driver of a rural and urban CD rate divide. My results show that low-sophistication rural counties receive an 11% premium during low-trust years, suggesting that trust in banks drives CD rates. I show that my results are not driven by rural depositor impatience, and I do not find evidence that the CD divide is driven by costly external finance in rural banks. Finally, I show that higher CD rates are passed through to consumers in the form of higher loan rates, suggesting that borrowers are in rural areas are worse off as a result of higher CD rates paid to savers. In Chapter 3, using a novel data set containing financial institution locations for 3 states, I study the history of branch and shadow banking in the United States over the last 100 years. Specifically, I focus on "Main Street" banking, which refers to brick and mortar retail bank branch locations, which were often located on Main Street in many cities in America and were regulated under state banking authorities and, later, the FDIC. I contrast Main Street banks with "shadow banks," which, in this context, refers to financial providers outside the purview of traditional banking regulation. These providers were generally classified as "finance companies," which were often unregulated and provided small, unsecured loans to retail consumers. My results show that shadow banks, which are not regulated under the FDIC or traditional banking authorities, have been an important part of the development of Main Street banking for over 100 years. I show that shadow banks rose to prominence following the Great Depression before losing market share to banks in the 1960’s and 70’s. Overall, my dissertation demonstrates the ways in which disadvantaged groups interact with the financial system, specifically as it relates to retail banking. Further, my research shows that shadow banks have played an important role in the evolution of consumer banking for over 100 years.Deep Blue DOI
Subjects
rural access to finance Freedman's Bank failure bank shadow bank history
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