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What drives banks' geographic expansion? The role of locally non-diversifiable risk

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  • Gropp, Reint E.
  • Noth, Felix
  • Schüwer, Ulrich

Abstract

We show that banks that are facing relatively high locally non-diversifiable risks in their home region expand more across states than banks that do not face such risks following branching deregulation in the United States during the 1990s and 2000s. Further, our evidence shows that these banks take into account the local risks in potential target regions: they expand more into counties where risks are relatively high and positively correlated with risks in their home region. This suggests that these banks do not only diversify but also build on their expertise in local risks when they expand into new regions.

Suggested Citation

  • Gropp, Reint E. & Noth, Felix & Schüwer, Ulrich, 2019. "What drives banks' geographic expansion? The role of locally non-diversifiable risk," SAFE Working Paper Series 246, Leibniz Institute for Financial Research SAFE, revised 2019.
    • Handle: RePEc:zbw:safewp:246
    DOI: 10.2139/ssrn.3347766
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    Cited by:

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    2. Bremus, Franziska & Krause, Thomas & Noth, Felix, 2021. "Lender-specific mortgage supply shocks and macroeconomic performance in the United States," IWH Discussion Papers 3/2021, Halle Institute for Economic Research (IWH).
    3. Joan Calzada & Xavier Fageda & Fernando Martínez-Santos, 2023. "Mergers and bank branches: two decades of evidence from the USA," Empirical Economics, Springer, vol. 64(5), pages 2411-2447, May.

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    More about this item

    Keywords

    banking; geographic expansion; deregulation; locally non-diversifiable risk; catastrophic risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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