This chapter explores whether shocks originating at local banks affect the EU’s economic growth and banking system’s stability. Our analysis proceeds in two steps. In the first step, we identify locally dominant banks that substantially impact their local macroeconomic environment but are not among the largest European banks. We construct a measure of idiosyncratic shocks at these dominant local banks, the so-called Local Banking Granular Residual. We show that idiosyncratic shocks to these locally dominant banks propagate nationally and explain a significant portion of aggregate EU macroeconomic fluctuations. In a second step, we relate idiosyncratic shocks at local dominant banks to EU banking system stability, as measured by an EU Bank Z-score, and find significant evidence. We show that local banks matter in the EU.