Crime, judicial inefficiency and local banks’ performance

We investigate the extent to which crime, and the inability to effectively suppress it, affect the performance of local banks in terms of credit extension, asset quality and profitability. The analysis focuses on cooperative banks in Italy, typically small institutions with strong ties to their communities, over the period 2013–2023. Our findings suggest that both crime and judicial inefficiency, even when considered separately and after controlling for banks’ operational efficiency, significantly affect credit extension and the incidence of non-performing loans. While their impact on overall profitability appears limited, they also exert a significant influence on non-interest income.