This paper identifies geographic linkages as novel linkages that can transmit negative shocks from one bank to another. I consider linkages between banks that engage in home lending in the same geographic area. Exploiting home price changes initiated by the Great Recession and heterogeneity in such changes across geographic areas to capture variations in a bank's exposure to negative shocks, I show that a bank contracts lending more if its linkages are more shocked. Results suggest investor-runs as the underlying mechanisms of spillovers: Because similar banks lend in similar markets, investors lose confidence on the quality of banks that are geographically linked with shocked banks and run on them, thus resulting in banks reducing lending.

This paper provides the first evidence of positive bank-to-bank spillovers. I show that geographic linkages between banks that engage in home lending in the same geographic region transmit positive shocks from one bank to another. I exploit shocks to the deposit base of banks located in counties experiencing shale oil booms and show that a nonshocked bank in a nonboom county expands lending more if its linkages have greater exposure to shale booms. Results show that the shock exposure of linkages has a positive impact on home prices of nonboom counties, and nonshocked banks located therein respond with increased lending.