Social Capital and Banking Crises
Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Paul Wachtel, New York University
Does Experience of Banking Crises Affect Trust in Banks?
AbstractThis paper investigates how past experience with banking crises influences an individuals’ trust in banks. We combine data on banking crises for the period 1970-2014 with individual data on trust in banks for 52 countries. We find that experiencing a banking crisis diminishes a person's trust in banks, and that high exposure to banking crises is negatively related to trust in banks. An individual's age at the time of the crisis is important, and significant for individuals between 41 and 60 years of age at the time of the banking crisis. Both severe and mild crises diminish trust in banks, but a severe banking crisis hits also young people's trust, while less severe banking crises mainly degrade trust of more mature people. The detrimental effect for trust in banks seems to be connected specifically to to systemic banking crises. Other types of financial crises incur a less significant effect. Overall, our results indicate that banking crises generate previously unrecognized costs for the economy in the form of a lasting reduction of trust in banks.
Depositors Disciplining Banks: The Impact of Scandals
AbstractDo depositors react to negative non-financial information about their banks? By using branch level data for the United States, I show that banks that financed the highly controversial Dakota Access Pipeline, experienced significant decreases in deposit growth, especially in branches located closest to the pipeline. These effects were greater for branches located in environmentally or socially conscious counties, and data suggests that savings banks were among the main beneficiaries of this depositor movement. Using a global hand-collected dataset on tax evasion, corruption, and environmental scandals related to banks, I show that negative deposit growth as a reaction to scandals is a widespread phenomenon.
Social Capital and Bank Misconduct
AbstractI use enforcement actions issued by US bank regulators to show that banks headquartered in counties with higher levels of social capital (as captured by civic norms and social networks) are less likely to be involved in misconduct. This result holds in a range of robustness and endogeneity tests and is supported by an analysis of the level of social capital of the place where bank executives grew up. The effect of local levels of social capital on misconduct is mostly significant for less geographically dispersed banks. I also show that, following misconduct revelation, sanctioned banks experience a greater decrease in deposit market-shares in counties with higher levels of social capital. Taken together, these findings indicate that social capital acts as an external monitoring mechanism preventing and punishing bank misconduct.
- G2 - Financial Institutions and Services
- H3 - Fiscal Policies and Behavior of Economic Agents