Bouncing Out of the Banking System: An Empirical Analysis of Involuntary Bank Account Closures

44 Pages Posted: 31 Jan 2009 Last revised: 2 Oct 2009

See all articles by Dennis Campbell

Dennis Campbell

Harvard University - Accounting & Control Unit

Francisco de Asis Martinez-Jerez

Cornell University

Peter Tufano

Harvard Business School; University of Oxford, Said Business School

Date Written: December 3, 2008

Abstract

Banks closed over 30 million debit/checking consumer accounts involuntarily in 2001-2005 for excessive overdrafts, with these former bank customers having limited or no subsequent access to the formal banking system. Using a new county-level database, we analyze the determinants of these involuntary account closures, focusing on explanations relating to household economics and financial decision making ability, social capital, bank policies, and credit access through payday lending. Involuntary closures are more frequent in counties with a larger fraction of single mothers, lower education levels, lower wealth, and higher rates of unemployment. Social capital also matters, with closures higher in counties with higher rates of property crime and lower rates of electoral participation. Bank policies relate to closures, with more closures in counties with more competitive banking markets and more multi-market banks. Finally, using national data and a natural experiment, we find that access to payday lending leads to higher rates of involuntary account closure.

Keywords: Consumer Finance, Payday Lenders, Account Closures, Overdraft, Unbanked, Commercial Banking

JEL Classification: G21, D12, E21, G28, D18, E65

Suggested Citation

Campbell, Dennis and Martinez-Jerez, Francisco de Asis and Tufano, Peter, Bouncing Out of the Banking System: An Empirical Analysis of Involuntary Bank Account Closures (December 3, 2008). Available at SSRN: https://ssrn.com/abstract=1335873 or http://dx.doi.org/10.2139/ssrn.1335873

Dennis Campbell

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Francisco de Asis Martinez-Jerez

Cornell University ( email )

Ithaca, NY 14853
United States

Peter Tufano (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan Hall 131
Boston, MA 02163
United States

University of Oxford, Said Business School

Park End Street
Oxford, OX1 1HP
Great Britain

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