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

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

Ulrich Schüwer

University of Bonn - Institute for Financial Economics and Statistics; Research Center SAFE at Goethe University Frankfurt

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 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

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

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

Ulrich Schüwer (Contact Author)

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

HOME PAGE: http://www.finance.uni-bonn.de/

Research Center SAFE at Goethe University Frankfurt ( email )

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

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