Move a Little Closer? Information Sharing and the Spatial Clustering of Bank Branches

Abstract

We study how information sharing between banks influences the geographical clustering of branches. We construct a spatial oligopoly model with price competition that explains why bank branches cluster and how the introduction of information sharing impacts clustering. Dynamic data on 59,333 branches operated by 676 banks in 22 countries between 1995 and 2012 allow us to test the hypotheses derived from our model. We find that information sharing spurs banks to open branches in localities that are new to them, but that are already well served by other banks. Information sharing also allows firms to borrow from more distant banks.

Keywords: branch clustering, information sharing, spatial oligopoly model

JEL Classification: D43, G21, G28, L13, R51