Banking Systems and Their Effects on Regional Wealth and Inequality

Abstract

Our paper examines how the characteristics of banking systems impact regional economies. We analyse a new and unique data set consisting of bank balance sheet information of banks in five European countries combined with their legal forms, and with regional economic data on NUTS 2 levels. It is demonstrated that the presence of headquarters of co-operative banks as well as public savings banks and private banks in the respective region has a positive impact on economic wealth and reduces income inequality. Furthermore, regional banking systems consisting of smaller banks have positive effects on the local economy. Finally, we find that banks with a higher ratio of equity to total assets go along with higher wealth and reduce inequality significantly. Our work shows that diverse regional banking systems have a manifold positive influence on local economies.

Keywords: Banking Systems, Small Banks, Inequality, Wealth, Co-operative Banks, Savings Banks, Regions

JEL Classification: P34, P43, G15, G21