The Geography of Banking Power: The Role of Functional Distance

In this chapter we analyse the new geography of the Italian banking system on the basis of the integration pressures of recent years. The analysis of the evolution of the banking system is focused on the concept of distance. In particular, we not only refer to the traditional distance between bank and customers, that is the operational distance, but also to the distance between decision centres of banks and local systems, that we define as functional distance. The focus of the chapter is on the effect that functional distance (or proximity) has on the performance of banks in terms of credit allocation, efficiency, and profitability. Our regression analysis proves that functional proximity has asymmetric territorial effects on the banks performance. Its beneficial effects are more evident in the less developed southern regions, than in the more advanced Centre-North regions of Italy.