Do Local Labor Market Conditions Impact Bank Profitability?

29 Pages Posted: 20 Oct 2020

See all articles by Danielle Zanzalari

Danielle Zanzalari

Seton Hall University; Seton Hall University - W. Paul Stillman School of Business

Date Written: August 17, 2020

Abstract

This paper studies the impact of local unemployment shocks on bank profitability. Our work advances on previous studies that only use national or state level data, as we create bank-specific measures of local unemployment in which the bank has exposure. Using these novel measures, we can determine how shocks to unemployment affect each individual bank's profitability. Our results indicate that an increase in the local market unemployment rate decreases bank profitability on average by 2.9%. We further examine what components of bank profitability are most impacted by local labor market conditions and find that net interest income is most impacted.

Keywords: banking, labor market, unemployment rate, profitability

JEL Classification: G20, G21, E32

Suggested Citation

Zanzalari, Danielle, Do Local Labor Market Conditions Impact Bank Profitability? (August 17, 2020). Available at SSRN: https://ssrn.com/abstract=3685383 or http://dx.doi.org/10.2139/ssrn.3685383

Danielle Zanzalari (Contact Author)

Seton Hall University

NJ
United States

Seton Hall University - W. Paul Stillman School of Business ( email )

400 South Orange Avenue
South Orange, NJ 07079
United States

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