Decision-Making Delegation in Banks
89 Pages Posted: 23 Apr 2018 Last revised: 22 Feb 2019
Date Written: February 19, 2019
Using natural disasters as shocks to local economies, we document that a bank branch’s ability to set deposit rates locally has real effects. Following disasters, branches that set rates locally increase deposit rates more and experience higher deposit volumes in affected counties. Consistent with imperfect insurance from internal capital markets, banks with more branches setting rates locally expand mortgage lending relatively more in affected counties. House prices recover faster and consumer bankruptcies are reduced in local areas that have more branches setting rates locally. Our results are robust to instrumenting for the location of deposit rate-setting authority using bank mergers.
Keywords: banks, organizational structure, branch banking
JEL Classification: G20, G21
Suggested Citation: Suggested Citation