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Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act

  • Victor Aguirregabiria
  • Robert Clark
  • Hui Wang

The 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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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-465.

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Length: Unknown pages
Date of creation: 15 Oct 2012
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-465
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