Banking structure, economic resilience and unemployment trajectories in US counties during the great recession

Abstract

How might the structure of banking affect economic resilience? We address this question by analyzing how the organizational structures of banks and banking markets were associated with unemployment trajectories in local economies during the Great Recession. Two county-level analyses yield convergent results. Increasing branch densities of giant derivative holding banks within local economies were associated with greater surges in unemployment, weaker employment recoveries and stronger recession effects on unemployment from 2007 through 2016. Increasing branch densities of community banks and credit unions and localism in banking were associated with lower unemployment spikes, stronger recoveries and dampened crisis effects. These findings advance sociological studies of finance by providing new quantitative evidence for links between the social structures of banking and economic performance. They also confound arguments that decentralized systems of small, locally based financial institutions are inherently fragile by design, suggesting instead that alternatives to 'too-big-to-fail' banking can enhance local economies' capacities to adapt proactively, withstand crisis and sustain employment during recessions.