Skip to main content

Advertisement

SpringerLink
Log in

Local Banking Market Frictions and Youth Crime: Evidence from Bank Failures

  • Published:
Journal of Financial Services Research Aims and scope Submit manuscript

Abstract

This paper examines the impact of local banking market frictions measured by bank failures on youth crime. Using a difference-in-differences framework, we find white and black youth violent crimes increase by 0.11 and 0.66 per 1000 people, respectively, following a bank failure. Further, we find white property crime, petty delinquency and drug crime increase by 0.29, 0.75 and 0.35 per 1000 people. Black youth see a rise in drug crimes by 0.88 per 1000 people. Results by gender reveal male drug crimes rise by 2.4 and female property crimes by 0.66 per 1000 people, respectively. The economic effects are most persistent for petty delinquency crimes committed by white youths. Furthermore, we find evidence that bank failures worsen local labor markets conditions by increasing white youth unemployment and reduce employment in the limited-services restaurant industry; channels that likely alter the opportunity cost of youth crime.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8

Similar content being viewed by others

Notes

  1. The term crime here is used interchangeably with arrests. The FBI UCR database reports numbers of arrests.

  2. Further program information can be found here: https://www.bjs.gov/ucrdata/abouttheucr.cfm.

  3. Violent crime aggregates murder and non-negligent manslaughter, manslaughter by negligence, robbery, and aggravated assault. Property crime captures burglary-breaking or entering, larceny-theft (not motor vehicles), motor vehicle theft, and arson. Petty delinquency captures vandalism, disorderly conduct, and curfew and loitering violations. Drug crimes is total drug abuse violation that encompassing sale or manufacturing and possession.

  4. This is less restrictive than the two standard deviations approach of Anderson (2014). We stick to this because there are good examples of counties with growth profiles that could justify growth in reporting agencies above this level.

  5. Between 1999-2016, 573 banks failed. The majority (332) were FDIC insured state chartered Federal Reserve non-member banks with operations across states and supervised by the FDIC. The others, 97 were FDIC insured national banks with branches throughout the country and supervised by the OCC; 65 were FDIC insured state chartered savings bank supervised by the FDIC; 6 were FDIC insured state or federal charter savings association supervised by the Office of Thrift Supervision; 58 were state chartered Fed member commercial banks supervised by the Federal Reserve and 15 were FDIC insured Stock and Mutual Savings Bank.

  6. We also used interactions terms of the mortgage delinquency rate and share of subprime population with the post-treatment variable to control for the effects of other forms of financial frictions on youth crime. Even after accounting for the effects that mortgage delinquencies or the share of subprime population had in the post-treatment period our mainline results of the effect of bank failures hold. These results are available on request.

  7. Saiz (2010) restricts sample to MSAs with over half a million observations. This severely reduces our sample to a quarter of the full sample. We use US Census Bureau crosswalk to match counties that are author’s MSAs.

  8. Fougere et al. (2009), for example, finds that an increase in youth unemployment affects property and violent crimes in France.

  9. We use limited-service restaurants NAICS codes 722211 and 722513.

  10. See https://datausa.io/profile/soc/353021#education.

References

  • Abadie A, Imbens GW (2016) Matching on the Estimated Propensity Score. Econometr 84(2):781–807

    Article  Google Scholar 

  • Agnew R (2001) Types of strain most likely to lead to crime and delinquency. J Res Crime and Delinq 38(4):319–361

    Article  Google Scholar 

  • Agnew R (1992) Foundation for a general strain theory. Criminol 30:47–87

    Article  Google Scholar 

  • Anari A, Kolari J, Mason J (2005) Bank Asset Liquidation and the Propagation of the U.S. Great Depression. J Money Credit Bank 37:753–773

    Article  Google Scholar 

  • Anderson M (2014) In School and Out of Trouble? The Minimum Dropout Age and Juvenile Crime. Rev. Econ. Stat 96(2):318–331

    Article  Google Scholar 

  • Arnio AN, Baumer EP, Wolff KT (2012) Assessing the implications of the contemporary foreclosure crisis on U.S. crime rates: A county-level analysis. Soc Sci Res 41:1598–1614

    Article  Google Scholar 

  • Arvanites TM, Robert HD (2006) Business cycles and street crime. Criminol 44(1):139–164

    Article  Google Scholar 

  • Ashcraft AB (2005) Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks. Am Econ Rev 95:1712–1730

    Article  Google Scholar 

  • Autor DH (2003) Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing. J Lab Econ 21(1):1–42

    Article  Google Scholar 

  • Beck T, Levine R (2004) Stock markets, banks, and growth: Panel evidence. J Bank Financ. 28(3):423–442

    Article  Google Scholar 

  • Becker G (1968) Crime and punishment: An economic approach. J Pol Econo 76(2):169–217

    Article  Google Scholar 

  • Bernanke B (1983) Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression. Am Econ Rev 73:257–276

    Google Scholar 

  • Calomiris CW, Mason J (2003) Consequences of Bank Distress during the Great Depression. Am Econ Rev 93:937–947

    Article  Google Scholar 

  • Cantor D, Land KC (1985) Unemployment and crime rates in the post-World War II United States: a theoretical and empirical analysis. Amer Sociol Rev 50(3):317–332

    Article  Google Scholar 

  • Contessi S, Johanna F (2013) U.S. Commercial Bank Lending through 2008: Q4 New Evidence from Gross Credit Flows. Econo Inq 51(1):428–444

    Article  Google Scholar 

  • Cook S, Duncan W, Louise P (2014) New evidence on the impact of gender and asymmetry in the crime-unemployment relationship. App Econ 46(2):119–126

    Article  Google Scholar 

  • Corman H, Dhaval D, Ariel K, Nancy ER (2017) The effect of maternal work incentives on youth crime. Lab Econ 49:128–144

    Article  Google Scholar 

  • Cornwell C, William T (1994) Estimating the economic model of crime with panel data. Rev Econ Stat 76(2):360–366

    Article  Google Scholar 

  • Costantini M, Iris M, Paradiso A (2018) Do Inequality, Unemployment and Deterrence Affect Crime over the Long Run? Reg Stud 52(4):558–571

    Article  Google Scholar 

  • DiSalvo JV (1999) Federal Reserve geographic banking market definitions. Unpublished working paper, Federal Reserve Bank of Philadelphia

    Google Scholar 

  • Edmark K (2005) Unemployment and Crime: Is There a Connection? Scand J Econ 107(2):353–373

    Article  Google Scholar 

  • Ehrlich I (1973) Participation in illegitimate activities: A theoretical and empirical investigation. J.Pol. Econo 81(3):521–565

    Article  Google Scholar 

  • Federal Reserve Board (2016) Consumers and Mobile Financial Services. Accessed at http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201603.pdf

  • Fougère D, Kramarz F, Pugeut J (2009) Youth Unemployment and Crime in France. J Euro Econ Assoc 7(5):909–938

    Article  Google Scholar 

  • Freeman R (1999) The economics of crime. In: Ashenfelter O, Card D (eds) Handbook of Labor Economics, vol 3. North Holland Publishers, Amsterdam, pp 3529–3571

    Google Scholar 

  • Garmaise JM, Moskowitz JT (2006) Bank Mergers and Crime: The Real and Social Effects of Credit Market Competition. J Financ 61(2):495–538

    Article  Google Scholar 

  • Ghosh A (2017) Do bank failures still matter in affecting regional economic activity. J Econ Bus 90(C):1–16

    Google Scholar 

  • Gilbert A, Kochin L (1989) Local Economic Effects of Bank Failures. J Financ Serv Res 14(3):333–345

    Article  Google Scholar 

  • Glaeser EL, Gyourko J, Saiz A (2008) Housing supply and housing bubbles. J Urb Econ 198-217.

  • Gove WR, Hughes M, Geerken M (1985) Are Uniform Crime Reports a valid indicator of the index crimes? an affirmative answer with minor qualifications. Criminology 23(3):451–502

    Article  Google Scholar 

  • Graham S, Lowery B (2004) Priming Unconscious Racial Stereotypes About Adolescent Offenders. Law Human Behav 28(5):483–504

    Article  Google Scholar 

  • Hamzah SNZ, Lau E (2013) The role of social factors in explaining crime. Theor. Appl. Econ 583(6):99–118

    Google Scholar 

  • Huang R (2008) Evaluating the real effect of bank branching deregulation: Comparing contiguous counties across US state border. J Finan Econ 87(3):678–705

    Article  Google Scholar 

  • Ivashina V, Scharfstein D (2010) Bank lending during the financial crisis of 2008. J Financ Econ 97(3):319–338

    Article  Google Scholar 

  • Janko Z, Popli G (2015) Examining the Link between Crime and Unemployment: A Time-Series Analysis for Canada. Appl Econ 47(37-39):4007–4039

    Article  Google Scholar 

  • Jawadi F, Mallick SK, Cheffou A, Augustine A (2020) Does higher unemployment lead to greater criminality? Revisiting the debate over the business cycle. J Econ Beh and Org doi. https://doi.org/10.1016/j.jebo.2019.03.025

  • Kang A, Lowery R, Wardlaw M (2015) The Costs of Failed Banks: A Structural Estimation of Regulatory Incentives. Rev Financ Stud 28(4):1060–1102

    Article  Google Scholar 

  • Kandrac J (2014) Bank Failure, Relationship Lending, and Local Economic Performance. Working Paper, Federal Reserve Board

    Google Scholar 

  • Lee K (2018) Unemployment and crime: the role of apprehension. Europ J Law Econ 45(1):59–80

    Article  Google Scholar 

  • Levitt S (1997) Using electoral cycles in police hiring to estimate the effect of police on crime. Am Econ Rev 87(3):270–290

    Google Scholar 

  • Levitt S (2001) Alternative strategies for identifying the link between unemployment and crime. J Quant Crimino 17(4):377–390

    Article  Google Scholar 

  • Levitt S (2004) Understanding why crime fell in the 1990s: four factors that explain the decline and six that do not. J Econ Persp 18(1):163–190

    Article  Google Scholar 

  • Lin MJ (2008) Does unemployment increase crime? Evidence from US Data 1974-2000. J Hum Resour 43(2):413–436

    Google Scholar 

  • Mian A, Sufi A (2009) The Consequences of Mortgage credit expansion: evidence from the U.S. mortgage default crisis. Q J Econ 124(4):1449–1496

    Article  Google Scholar 

  • Miyoshi K (2011) Crime and local labor market opportunities for low-skilled workers: evidence using Japanese prefectural panel data. Pac Econ Rev 16(5):565–576

    Article  Google Scholar 

  • Mocan N, Bali T (2010) Asymmetric crime cycles. Rev Econ Stat 92(4):899–911

    Article  Google Scholar 

  • Morgan SL, Harding DJ (2006) Matching estimators of causal effects prospects and pitfalls in theory and practice. Sociolo Meth Res 35(1):3–60

    Article  Google Scholar 

  • Mustard D (2010) How do labor markets affect crime? New evidence on an old puzzle. In: Zimmerman BB (ed) Handbook on the economics of crime. Edward Elgar Publishing, Cheltenham, pp 342–358

    Google Scholar 

  • Narayan PK, Smyth R (2004) Crime rates, male youth unemployment and real income in Australia: evidence from granger causality tests. Appl Econ 36(18):2079–2095

    Article  Google Scholar 

  • Ng J, Roychowdhury S (2014) Do loan loss reserves behave like capital? Evidence from recent bank failures. Rev Acct Stud 19(3):1234–1279

    Article  Google Scholar 

  • Nordin M, Almen D (2017) Long-Term Unemployment and Violent Crime. Emp Econ 52(1):1–29

    Article  Google Scholar 

  • Ogura Y, Uchida H (2014) Bank Consolidation and Soft Information Acquisition in Small Business Lending. J Financ Serv Res 45:173–200

    Article  Google Scholar 

  • Piquero AR (2008) Disproportionate minority contact. The Future of Children. 18(2):59–79

    Article  Google Scholar 

  • Raphael S, Winter-Ebmer R (2001) Identifying the effect of unemployment on crime. J Law Econ 44(1):259–283

    Article  Google Scholar 

  • Sachsida A, Cardoso de Mendonca MJ, Loureiro PRA, Sarmiento Gutierrez MB (2010) Inequality and criminality revisited: further evidence from. Brazil Empir Econ 39(1):93–109

    Article  Google Scholar 

  • Saiz (2010) The Geographic Determinants of Housing Supply. Q J Econ 125(3):1253–1296

    Article  Google Scholar 

  • Shaw CR, McKay HD (1942) Juvenile delinquency in urban areas. University of Chicago Press, Chicago, IL

    Google Scholar 

  • Skogan WG (1990) Disorder and decline: Crime and the spiral decay in American neighborhoods. University of California Press, Berkeley

    Google Scholar 

  • Smith D, Devine J, Sheley J (1992) Crime and Unemployment: Effects across Age and Race Categories. Sociolo Persp 35(4):551–572

    Article  Google Scholar 

  • Tang CF (2010) The effect of macroeconomic evils on property and violent crimes in Malaysia. Int J Bus Soc 11(2):35–50

    Google Scholar 

  • Taylor RB (2001) Breaking Away From Broken Windows. Westview Press, Boulder, CO

    Google Scholar 

  • Wilson J, Kelling G (1982) The police and neighborhood safety: broken windows. Atlantic Monthly. March:29–38

  • Wu D, Wu Z (2012) Crime, inequality and unemployment in England and Wales. Appl Econ 44(29):3765–3775

    Article  Google Scholar 

  • Ziebarth NL (2013) Identifying the effects of Bank Failures from a Natural Experiment in Mississippi during the Great Depression. Am Econ J Macro 5(1):81–101

    Article  Google Scholar 

Download references

Funding

The authors have no relevant funding resources to disclose.

Author information

Authors and Affiliations

  1. Division of International Banking and Finance Studies, A. R. Sanchez Jr. School of Business, Texas A&M International University, 5201 University Boulevard, Laredo, TX, 78041, USA

    Amit Ghosh

  2. Department of Economics and Finance, Robert C. Vackar College of Business and Entrepreneurship, The University of Texas Rio Grande Valley, 1201 W. University Drive, Edinburg, TX, 78539, USA

    Salvador Contreras

Authors
  1. Amit Ghosh
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Salvador Contreras
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Amit Ghosh.

Ethics declarations

Conflicts of interests/Competing interests

The authors also have no conflicting and competing interests to declare that are relevant to the content of this article.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

Table 11 Difference-in-differences estimates of bank failure on youth crime, 1999-2016
Full size table
Table 12 Difference-in-differences estimates of bank failure on youth crime, 1999-2016
Full size table
Table 13 Difference-in-differences estimates of bank failure on youth crime, 1999-2016
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Ghosh, A., Contreras, S. Local Banking Market Frictions and Youth Crime: Evidence from Bank Failures. J Financ Serv Res 61, 43–75 (2022). https://doi.org/10.1007/s10693-021-00370-z

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10693-021-00370-z

Keywords

JEL classification

Search

Navigation