Bank Geographic Diversification and Systemic Risk

Forthcoming, Review of Financial Studies

52 Pages Posted: 17 Jun 2019 Last revised: 25 Aug 2019

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Saiying Deng

Kent State University

Cong Xia

Central University of Finance and Economics(CUFE), School of Finance

Date Written: May 24, 2019

Abstract

Exploiting staggered interstate banking deregulation as exogenous shocks to bank geographic expansion, we examine the causal effect of geographic diversification on systemic risk. Using the gravity-deregulation approach developed in Goetz, Laeven, and Levine (2013, 2016), we find that bank geographic diversification leads to higher systemic risk measured by the change in conditional value at risk (ΔCoVaR) and financial integration (Logistic(R2)). Furthermore, we document that geographic diversification affects systemic risk via its impact on asset similarity. The impact of geographic diversification on systemic risk is stronger in BHCs located in states comoving less with the U.S. aggregate economy.

Keywords: Geographic diversification; Systemic risk; Deregulation; Gravity-deregulation

JEL Classification: G01, G20, G21, G28

Suggested Citation

Chu, Yongqiang and Deng, Saiying and Xia, Cong, Bank Geographic Diversification and Systemic Risk (May 24, 2019). Forthcoming, Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=3400414 or http://dx.doi.org/10.2139/ssrn.3400414

Yongqiang Chu

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Saiying Deng (Contact Author)

Kent State University ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
3306721213 (Phone)

Cong Xia

Central University of Finance and Economics(CUFE), School of Finance ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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