Geographic Diversification and Banks’ Funding Costs

Ross Levine (), Chen Lin and Wensi Xie ()
Additional contact information
Wensi Xie: Department of Finance, CUHK Business School, Chinese University of Hong Kong, Shatin, Hong Kong

Management Science, 2021, vol. 67, issue 5, 2657-2678

Abstract: We assess the impact of geographic diversification on a bank’s costs of interest-bearing liabilities. We employ a new identification strategy and discover that geographic expansion across U.S. states lowered funding costs. Consistent with expansion facilitating risk diversification, we find that (1) funding costs fall more when banks expand into states whose economies are less correlated with the banks’ state and (2) geographic diversification reduces the costs of uninsured, but not insured, deposits. Consistent with expansion intensifying agency frictions, which puts upward pressures on funding costs, we discover that geographic diversification reduces the costs of interest-bearing liabilities more in better-monitored and better-run banks.

Keywords: banking; banking regulation; funding cost; financial stability (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2020.3582 (application/pdf)

Related works:
Working Paper: Geographic Diversification and Banks’ Funding Costs (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:5:p:2657-2678

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().