Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act
AbstractThe 1994 Riegle Neal (RN) Act removed interstate banking restrictions in the US. The primary motivation was to permit geographic risk diversification (GRD). Using a factor model to measure banks' geographic risk, we show that RN expanded GRD possibilities in small states, but that few banks took advantage. Using our measure of geographic risk and a revealed preference approach, we identify preferences towards GRD separately from the contribution of other factors to branch network configuration. Risk has a negative effect on bank value, but this has been counterbalanced by economies of density/scale, reallocation/merging costs, and concerns for local market power.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-465.
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Date of creation: 15 Oct 2012
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Geographic risk diversification; Retail banking; Oligopoly competition; Branch networks; Riegle Neal Act;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-BAN-2012-10-27 (Banking)
- NEP-NET-2012-10-27 (Network Economics)
- NEP-RMG-2012-10-27 (Risk Management)
- NEP-URE-2012-10-27 (Urban & Real Estate Economics)
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