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Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition




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    • Garmaise is from the UCLA Anderson School and Moskowitz is from the Graduate School of Business, University of Chicago and NBER. We have benefited from the suggestions and comments of Tony Bernardo, Marianne Bertrand, Phillip Bond, Doug Diamond, Mark Duggan, Eugene Fama, Kenneth French, Jonathan Guryan, Erik Hurst, Matthias Kahl, Anil Kashyap, Steven Levitt, Atif Mian, Sendhil Mullainathan, Canice Prendergast, Raghu Rajan, Tano Santos, Per Stromberg, Luigi Zingales, and seminar participants at the University of Chicago Graduate School of Business, NYU, Wharton, UCLA, University of Washington, and Dartmouth College. Special thanks to Michael Arabe, John Edkins, and Peggy McNamara as well as for providing the U.S. commercial real estate data; to Bob Figlio, Dave Ingeneri, and CAP Index, Inc. for providing the crime data; to F.W. Dodge Division of the McGraw-Hill Companies, Inc. for providing the construction data; to John J. Donohue III and Steven Levitt for providing abortion rate and imprisonment rate data; and to Phil Strahan for providing state bank branching dates. Moskowitz thanks the Center for Research in Security Prices and the James S. Kemper Foundation Research Fund for financial support.


Using a unique sample of commercial loans and mergers between large banks, we provide micro-level (within-county) evidence linking credit conditions to economic development and find a spillover effect on crime. Neighborhoods that experience more bank mergers are subject to higher interest rates, diminished local construction, lower prices, an influx of poorer households, and higher property crime in subsequent years. The elasticity of property crime with respect to merger-induced banking concentration is 0.18. We show that these results are not likely due to reverse causation, and confirm the central findings using state branching deregulation to instrument for bank competition.