Ethnic Concentration and Bank Use in Immigrant Communities

AUTHORS: Sarah Bohn and Sarah Pearlman

PAGES: 45     DATE: December 2009

ABSTRACT: Despite the many benefits of bank use, large portions of the U.S. population remain unbanked. One of the largest groups is immigrants, in which the incidence of being unbanked is more than 12 percent higher than natives. In this paper, we document that the nativity gap in bank use has grown over time; immigrants are becoming increasingly less likely to have a bank account than are natives. We also test the importance of immigrant enclaves—areas with a high concentration of immigrants from the same region—in explaining the increasing differential in bank use. We anticipate that immigrants living in enclaves may exhibit lower formal bank use because local immigrant social networks provide informal financial services and information about formal financial services. Using data on bank use, bank location, immigrant status, and immigrant enclaves from the SIPP, Census, and FDIC, we find that immigrants living in areas with higher concentrations of immigrants from their source region are significantly less likely to have a bank account. The economic significance of our estimates is large, and the results suggest that immigrant enclaves may have some power in explaining the persistence and increasing severity of the nativity gap in bank use.

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