Geographic Diffusion of COVID-19 Economic Shocks: An Examination of Bank Transmission Effects

29 Pages Posted: 1 Sep 2021

See all articles by Gazi Kara

Gazi Kara

Board of Governors of the Federal Reserve System

Nathan Swem

Board of Governors of the Federal Reserve System

Steven Urry

The University of Texas at Austin

Ilknur Zer

Board of Governors of the Federal Reserve System

Date Written: August 31, 2021

Abstract

We present evidence that multi-market banks transmitted economic shocks relating to the COVID-19 crisis among the geographic areas where the banks operate. We find that banks transmission effects were about half as economically significant as the direct effect of the shocks. We also find that the presence of community banks in a geographic area mitigates multi-market bank transmission effects. Our results illustrate the importance of banks for local economic outcomes, and the role of community banks in mitigating the transmission of economic shocks. Our results also suggest that policy responses to economic shocks should be informed by the structure of the geographic network of the local banks.

Keywords: COVID-19, contagion, transmission of shocks, credit supply, multimarket banks, bank stability

JEL Classification: G21, G32

Suggested Citation

Kara, Gazi I. and Swem, Nathan and Urry, Steven and Zer, Ilknur, Geographic Diffusion of COVID-19 Economic Shocks: An Examination of Bank Transmission Effects (August 31, 2021). Available at SSRN: https://ssrn.com/abstract=3915035 or http://dx.doi.org/10.2139/ssrn.3915035

Gazi I. Kara

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nathan Swem

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Steven Urry

The University of Texas at Austin ( email )

United States

Ilknur Zer (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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