Banking On Demography: Population Aging and Financial Integration

54 Pages Posted: 5 Aug 2019 Last revised: 12 Aug 2019

See all articles by Sebastian Doerr

Sebastian Doerr

University of Zurich - Department of Economics; University of Zurich - UBS International Center of Economics in Society

Gazi Kabas

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Date Written: August 1, 2019

Abstract

This paper argues that an integrated financial sector mitigates negative effects of population aging. We show that U.S. counties with an aging population see an increase in local deposits, reflecting higher saving rates of seniors. Banks use these deposits to increase credit supply. Using detailed data on mortgage lending, we find that banks channel deposits from aging counties towards counties with a younger population. We find no evidence that banks engage in risky lending: they lend less to counties with a high share of sub-prime borrowers or low incomes, and do not lend disproportionately to low-income borrowers. The increase in credit supply has real effects. Counties with a higher market share of aging-exposed banks see an increase in house prices and building permits, as well as in firm formation. Results are robust to controlling for bank and county characteristics through granular fixed effects and instrumenting local aging with casualties during World War II.

Keywords: Demographics, population aging, financial integration, mortgage lending, house prices

JEL Classification: E44, G20, G21, J11

Suggested Citation

Doerr, Sebastian and Kabas, Gazi, Banking On Demography: Population Aging and Financial Integration (August 1, 2019). Available at SSRN: https://ssrn.com/abstract=3430184 or http://dx.doi.org/10.2139/ssrn.3430184

Sebastian Doerr (Contact Author)

University of Zurich - Department of Economics ( email )

Schönberggasse 1
Office G-05
Zürich, 8001
Switzerland

HOME PAGE: http://www.sdoerr.com

University of Zurich - UBS International Center of Economics in Society

Schönberggasse 1
Zürich, 8001
Switzerland

Gazi Kabas

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

HOME PAGE: http://https://sites.google.com/view/gazikabas/home

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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