Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act

Victor Aguirregabiria (victor.aguirregabiria@utoronto.ca), Robert Clark and Hui Wang

Working Papers from University of Toronto, Department of Economics

Abstract: The 1994 Riegle Neal (RN) Act removed interstate banking restrictions in the US. The primary motivation was to permit geographic risk diversification (GRD). Using a factor model to measure banks' geographic risk, we show that RN expanded GRD possibilities in small states, but that few banks took advantage. Using our measure of geographic risk and a revealed preference approach, we identify preferences towards GRD separately from the contribution of other factors to branch network configuration. Risk has a negative effect on bank value, but this has been counterbalanced by economies of density/scale, reallocation/merging costs, and concerns for local market power.

Keywords: Geographic risk diversification; Retail banking; Oligopoly competition; Branch networks; Riegle Neal Act (search for similar items in EconPapers)
JEL-codes: G21 L13 L51 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2012-10-15
New Economics Papers: this item is included in nep-ban, nep-net, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Diversification of geographic risk in retail bank networks: evidence from bank expansion after the Riegle-Neal Act (2016)
Working Paper: Diversification of Geographic Risk in Retail Bank Networks: Evidence from Bank Expansion after the Riegle-Neal Act (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-465

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