Banking Sector and Violence in Southern Europe

One of the non-market mechanisms that affect economic decisions is security and non-surprisingly there is a large literature that studies the economic consequences of domestic conflict. Yet, although banks occupy a central role in the Southern European markets, there is a puzzling lack of attention to them in studies of political violence. Turkey, as a case that has been experiencing domestic conflict with varying degrees in the last decades, offers opportunities to understand how the banking sector responds to such political violence. With original data that we have collected, we consider bank branch expansion and contraction in locations and times of violence. Our findings show that terrorism is negatively associated with all types of bank branch numbers. Foreign-owned banks are more sensitive to terror attacks and economic indicators relative to private and state-owned banks. State-owned banks, in turn, respond to the attacks differently in non-terror zones compared to high terror areas.