Banks in Disadvantaged Areas

Banks in Disadvantaged Areas Based on the presumption that the empirical banking literature devotes too little attention to institutions with special features, this paper examines banks that are affected by low regional development. Data on the full population of Austrian banks is applied to identify such banks and to study their particular characteristics. It turns out that banks operating in disadvantaged areas differ from their counterparts with respect to individual as well as market–related attributes. Additionally, several effects commonly estimated in empirical banking models prove to be sensitive to the exclusion of these institutions from the estimation sample. These comprise the effect of bank size on the net interest margin, the heterogeneity of loan supply reactions to monetary policy signals which are related to the banks' liquidity position, and the influence of local concentration on competitive behavior. Our findings confirm that key empirical results may be driven by certain groups of banks with special features. Thus, support is provided for the necessity of a more critical view of empirical outcomes for "the average bank", both from national samples and cross–country studies. (JEL G21, L11, R32)