The distributional impact of local banking. Evidence from the financial and sovereign-debt crises

Abstract

This paper investigates whether local cooperative banks played a role in mitigating income inequality within Italian municipalities following the main crises that marked the European landscape from 2008 to 2015, namely the financial and sovereign-debt crises. Our empirical findings indicate that, despite the overall rise in income inequality during the post-crisis periods, municipalities hosting at least one cooperative bank branch experienced a comparatively smaller increase. This mitigating effect on income inequality is not observed in the case of non-cooperative banks. Furthermore, the size of the cooperative banking sector emerged as a significant factor in shaping income distribution: municipalities characterized by larger amounts of cooperative banks loans and deposits displayed lower levels of income inequality. The distributional impact of cooperative banks following the two crises was particularly pronounced in smaller municipalities, and where the degree of financial and industrial development was higher.