What Drives Banks' Geographic Expansion? The Role of Locally Non-Diversifiable Risk

66 Pages Posted: 1 Apr 2019 Last revised: 29 Aug 2019

See all articles by Reint Gropp

Reint Gropp

Halle Institute for Economic Research

Felix Noth

Halle Institute for Economic Research; Otto-von-Guericke-Universität Magdeburg

Ulrich Schüwer

Goethe University Frankfurt - Department of Finance; Leibniz Institute for Financial Research SAFE

Date Written: August 28, 2019

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.

Keywords: banking, geographic expansion, deregulation, locally non-diversifiable risk, catastrophic risk

JEL Classification: G21, G28

Suggested Citation

Gropp, Reint and Noth, Felix and Noth, Felix and Schüwer, Ulrich, What Drives Banks' Geographic Expansion? The Role of Locally Non-Diversifiable Risk (August 28, 2019). SAFE Working Paper No. 246, Available at SSRN: https://ssrn.com/abstract=3347766 or http://dx.doi.org/10.2139/ssrn.3347766

Reint Gropp

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Felix Noth

Halle Institute for Economic Research

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/asp/person.asp?fnh&Lang=e&Abteilung=fin

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

Ulrich Schüwer (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

HOME PAGE: http://www.wiwi.uni-frankfurt.de/de/abteilungen/finance/home.html

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://safe-frankfurt.de/

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