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Entry in banking markets

Author

Listed:
  • Traversa, Marina
  • Vuillemey, Guillaume

Abstract

We show that adverse selection is a key determinant of banking market structure. Using data on US bank branches over 1981-2016, we study banks' decisions to expand or contract geographically. First, banks are more likely to expand in counties that are similar, in terms of industry shares, to those in which they already have branches. Second, when contracting, banks are more likely to close or sell branches in similar areas. These results suggest that banks value diversification, but that informational barriers prevent them from achieving optimal scale. These findings have implications for banking competition and the rise of fintechs.

Suggested Citation

  • Traversa, Marina & Vuillemey, Guillaume, 2025. "Entry in banking markets," SAFE Working Paper Series 461, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:333924
    DOI: 10.2139/ssrn.3355572
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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