Bank Consolidation and Financial Inclusion: The Adverse Effects of Bank Mergers on Depositors [Job Market Paper]

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I document that large banks tend to have higher fees and higher minimum required balances on deposit accounts relative to small banks.  As a result, bank consolidation makes it relatively more expensive for low-income households to maintain bank accounts.  Using a difference-in-differences methodology to estimate a causal impact, I show that, following acquisitions of small banks by large banks, deposit account fees and minimum required balances increase, and deposit outflow is almost 2% per year higher, relative to acquisitions by other small banks.  The effect of consolidation on deposit outflow is stronger in areas with a higher proportion of low-income households.  Areas in which large banks acquire small banks subsequently experience faster growth in non-bank financial services such as check cashing facilities, consistent with some of the outflow corresponding to depositors who leave the banking system altogether. Moreover, households in areas affected by bank consolidation are more likely to experience evictions after personal financial shocks, in line with these households facing difficulty in accumulating emergency savings without bank accounts.


Job Market Paper
Last updated on 11/01/2018