0 Bank Behavior and Social Capital

This paper examines the performance and policies of banks located in high social capital areas. Results show that higher levels of social capital are associated with safer, more profitable, yet less capitalized banks. Additionally, banks in areas with higher social capital display lower likelihoods of default and failure, yet higher likelihoods of receiving capital under the TARP Capital Purchase Program. Examining the relationship between social capital and bank/consumer relations, we find that banks in higher social capital areas pay more interest and charge fewer fees on deposits, and charge lower rates and fees on loans. The results suggest that banks located in higher social capital areas take actions that promote trust and therefore enable working relationships that have productive benefits for both banks and consumers.