IDEAS home Printed from https://ideas.repec.org/p/red/sed010/485.html
   My bibliography  Save this paper

Bank Expansion after the Riegle-Neal Act: The Role of Diversification of Geographic Risk

Author

Listed:
  • Robert Clark

    (HEC Montreal)

  • Hui Wang

    (University of Toronto)

  • Victor Aguirregabiria

    (University of Toronto)

Abstract

The Riegle-Neal Act in 1994 established the conditions for the removal of restrictions on interstate banking and branching in US. One of the primary motivations for enacting this act was permitting banks to diversify geographic risk. The purpose of this paper is to study the role of diversification of geographic risk as one of the motives for bank expansion during the period 1994-2006. We propose and estimate a game theoretic model of banks' decisions to operate branches in local markets. A key feature of the model is that a bank's decision of where to operate branches is modeled as a portfolio choice between risky assets. The returns to a bank's investments in a local geographic market (e.g., loans to local business and households) have a risk component that is specific of the local market. A bank is concerned with both the aggregate expected return and the aggregate risk of its portfolio of geographic markets. To estimate this model, we construct a data set that combines information from four different sources: branch and deposits data from the FDIC database; information on mergers/acquisitions from the Chicago Fed; a detailed and comprehensive description of the timing of adoption of the Riegle-Neal Act in different states; and Census Bureau county-level data on population, income and industry composition.

Suggested Citation

  • Robert Clark & Hui Wang & Victor Aguirregabiria, 2010. "Bank Expansion after the Riegle-Neal Act: The Role of Diversification of Geographic Risk," 2010 Meeting Papers 485, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:485
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2010/paper_485.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cimadomo, Jacopo & Giuliodori, Massimo & Lengyel, Andras & Mumtaz, Haroon, 2023. "Changing patterns of risk-sharing channels in the United States and the euro area," Working Paper Series 2849, European Central Bank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed010:485. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.