Efficient Banking Under Interstate Branching
J. OF MONEY, CREDIT, AND BANKING, Vol. 28 No. 4, November 1996
Posted: 29 Oct 1996
Nationally chartered banks will be allowed to branch across state lines beginning June 1, 1997. Whether they will depends on their assessment of the profitability of such a delivery system for their services, and on their preferences regarding risk and return. We investigate the probable effect of interstate branching on banks' risk-return tradeoff, accounting for the endogeneity of deposit volatility. If interstate branching improves the risk-return tradeoff banks face, then banks that branch across state lines may choose a higher level of risk in return for higher profits. We find efficiency gains due to geographic diversity.
JEL Classification: G2, D2
Suggested Citation: Suggested Citation