The effects of changes in local-bank health on household consumption

Cooper, Daniel H.; Peek, Joe

Working Paper

The effects of changes in local-bank health on household consumption

Abstract: Focusing on localized measures of bank health and economic activity, and renters as well as homeowners, this paper uses an innovative approach to identifying households likely in need of credit to investigate the effect on household spending of a deterioration in local-bank health. The analysis shows that local-bank health tends to impact the expenditures of renters more than homeowners, with the strongest effects for households that likely need credit?those experiencing a negative income shock and having limited liquid wealth. These findings contribute to the discussion of the linkages between the financial sector and real economic activity.

Keywords: consumption; local-bank health; credit constraints;

JEL Classification: E21; G21;