Bank Branch Supply and the Unbanked Phenomenon

An exogenous increase in the density of bank branches reduces the share of unbanked households among low income populations. This finding is established using US interstate branching deregulation between 1994 and 2010 as an exogenous shock to the entry of new branches in poor counties. We rule out demand-based explanations for the entry of new branches showing that branching deregulation has no effect either on a placebo sample of non-deregulated institutions, or on overall county economic prosperity. Using household level data, we find that this exogenous supply-shock on branch density increases the likelihood for low-income households to hold a bank account. The effect is even stronger for populations that are more likely to be rationed by banks, such as black households living in ''high racial bias" states, or for households living in rural areas where branch density is initially low.