A Comparison between Unit and Branch Banking: Australian Evidence on Portfolio Diversification and Branch Specialization, 1860-1930
This paper examines the consequences of branch banking for the Australian economy. There is little evidence to show that branching increased the stability of Australian banking. In 1893 Australia suffered the worst panic ever in a branch banking country. During the crisis, more extensively branched banks were more likely to suspend payments. However, it is shown that branching increased the provision of banking services to rural areas. This occurred because branch banks could reallocate capital from urban to rural regions at low cost, whereas unit banks typically had to raise all their capital and issue all of their loans locally.
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|Date of revision:||Jan 2001|
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