Bank branch location and stability during distress

Jill M. Hendrickson, Mark Nichols and Daniel R. Fairchild

Journal of Financial Economic Policy, 2014, vol. 6, issue 2, 133-151

Abstract: Purpose - – The purpose of this paper is to examine the impact of bank branch location on the likelihood of bank failure during the most recent financial crisis. Design/methodology/approach - – This paper estimates the probit regression to identify the causes of bank failures and attempts to determine the role of branch location in bank performance. Findings - – Using data from failed and surviving banks in Georgia and Florida, this paper finds that diversifying the balance sheet and operating in more competitive markets reduced failure rates, but branching intensity, measured by number of branches and distance of branches from the home office did not significantly reduce the probability of failure. This suggests that, at least in today ' s market, it is not important to bank stability to have a branching network a significant distance from the home office. Originality/value - – This paper carefully considers the role of branch location in the likelihood of bank failure during financial distress. As such, it contributes to the historical policy debate regarding regulation prohibiting or minimizing banks ' ability to branch. It also contributes to our understanding of how banks structure their branching networks in the contemporary banking environment.

Keywords: Financial crisis; Branch banking; Bank failures; E44; G21; G28 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:v:6:y:2014:i:2:p:133-151

DOI: 10.1108/JFEP-07-2013-0026

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