A Tale of Two Cities: The Rural-Urban Divide in Banking

Abstract

Bank branches in counties with a high rural population offer certificate of deposit (CD) rates of up to 22% higher than banks in counties that are more urban. Although bank size does explain some of this result, controlling for large bank results in a 5.6% to 8% rural CD premium. I show that higher CD rates in rural counties are not a function of credit quality of rural borrowers and are not explained by rural CD depositor impatience or rural bank capital constraints. Overall, my findings highlight an important difference in the way rural and urban depositors interact with the financial system.

Keywords: rural, deposits, CD rates

JEL Classification: G530, N20, O160