Decision-Making Delegation in Banks

Using natural disasters as shocks to local economies, we document that a bank branch’s ability to set deposit rates locally has real effects. Following disasters, branches with rates set locally increase deposit rates more and experience higher deposit volumes in affected counties. Consistent with imperfect insurance from internal capital markets, banks with more branches setting rates locally relatively expand mortgage lending in affected counties. House prices recover faster in local areas where more branches’ rates are set locally. This paper was accepted by Tomasz Piskorski, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4856 .