Branching into Main Street

• In Event: Economic Sociology Section Roundtables
  In Refereed Roundtable (60 minute): Roundtable 5: Financialization, Wealth, and Inequality

Abstract

This study examines the impact of financial deregulation on household debt, focusing on how metropolitan-level market shares of top-5 banks, community banks, and mega banks influenced borrowing patterns during the U.S. banking and branching deregulation period from 1994 to 2003. Using an instrumental variable approach, the results reveal that increased concentration of top-5 and mega banks significantly raises household secured debt, particularly mortgage debt burden. Stratification by income quintiles shows that these effects are not uniform across the income spectrum. For the wealthiest two income quintiles, the rise of large banks and the decline of community banks lead to higher mortgage debt burden. In contrast, banking consolidation increases unsecured debt burden for the lowest-income households. These findings suggest that the consolidation of local banking structure triggered by deregulation enhances wealthy households' borrowing capacity for mortgage loans but escalates the debt burden for low-income households.

Author

• Bo-Wei Hu, Princeton University