Why do banks close? The geography of branch pruning

In the aftermath of the Great Recession, the number of bank branches declined in most of developed countries. In this paper, we investigate how banks have downsized their branch networks in Italy, by comparing the pre and post crisis spatial distribution of branches. By using a detailed dataset that includes a wide set of controls for the characteristics of each bank branch, we estimate the probability of a branch being closed as a function of its distance from both proprietary and competitors’ branches. We find that banks are more prone to close branches in those areas where other proprietary branches are closer and also where competitors’ branches are closer. This indicates that, since the start of the crisis, banks have closed branches especially in those areas where their proprietary network was relatively more populated and competition was fiercer.