Understanding the Economic Impact of Community Bank Closures in Rural America

This paper seeks to highlight the strong correlation and potential causation between the presence of physical community bank branches in rural communities and local economic outcomes like payroll, employment, and establishments in a given region. To do this, I conduct a two-part analysis involving a fixed effects model with data from across the US and a regression discontinuity model of a subset of the data in parts of Delaware and Maryland. Overall, my results show a significant strong correlation between the number of bank branches in a region and the expected percent changes in economic outcomes, but I lack the results to claim causality between the opening or closure of a bank branch and changes in the local economy. This has relevance in understanding the need for physical bank branches as changes in the financial industry since the 2008 Financial Crisis, like online banking, have continued to accelerate.