Exporting Liquidity: Branch Banking and Financial Integration

Gilje, Erik; Loutskina, Elena; Strahan, Philip E.

doi:10.2139/ssrn.2252920

Cited by 173 publications

(28 citation statements)

References 28 publications

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“…As far as other controls are concerned we find that the more banks are reliant on whole‐sale funding the higher the probability of closing branches. This is in line with a recent paper by Gilje et al (2016), showing the crucial role of bank branches in raising deposits at the local level. Furthermore, we find that the probability to close branches is higher for banks having a worse quality of lending, measured by the ratio of nonperforming loans out of total lending.…”

Section: Resultssupporting

confidence: 93%

The geography of banking: Evidence from branch closings

Galardo¹,

Garrì

Mistrulli

et al. 2020

Economic Notes

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In the aftermath of the Great Recession, the number of bank branches declined in most developed countries. In this paper, we investigate how banks have downsized their branch networks in Italy, by comparing the pre‐ and post‐crisis spatial distribution of branches. By using a detailed data set that includes a wide set of controls for the characteristics of each bank branch, we estimate the probability of a branch being closed as a function of its distance from both proprietary and competitors' branches. We find that banks are more prone to close branches in those areas where other proprietary branches are closer and where competitors' branches are closer. This indicates that, since the start of the crisis, banks have closed branches especially in those areas where their proprietary network was relatively more populated and the competition was fiercer.

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Section: Resultssupporting

confidence: 93%

The geography of banking: Evidence from branch closings

Galardo¹,

Garrì

Mistrulli

et al. 2020

Economic Notes

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show abstract

“…Our work complements prior research describing the impact of local shocks on the lending activities of banks (Gilje, Loutskina, and Strahan (2016), Bustos, Garber, and Ponticelli (2016)). Unlike these articles, we focus on firms rather than banks.…”

Section: Introductionsupporting

confidence: 53%

Financial Flexibility: At What Cost?

Garmaise¹,

Natividad²

2020

J. Financ. Quant. Anal.

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Firms strategically borrow in different locations. Approximately one-quarter of Peruvian companies with operations in multiple areas source their financing from more than one province. Mining windfalls generate finance supply shocks, leading to the provision of more credit at lower average rates, and we show that firms exploit geographic financial flexibility by concentrating their borrowing in booming locations. Firms are less likely to initiate borrowing in new markets when their current borrowing provinces are thriving. The pursuit of flexibility in borrowing markets, however, degrades a firm’s relationships with its existing lenders, thereby heightening its risk of future financial distress.

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“…Note that a causal relation in the opposite direction exists as well: An exogenous increase in the availability of deposits fosters banks' lending in remote locations. Gilje, Loutskina, and Strahan (2013) find that banks that were exposed to a shale oil (and deposit) shock in some branch locations increased their lending in other, nonshale locations (i.e., a shock to the supply of deposits generates lending activity). This evidence is consistent with our findings in that causality can run in both directions, even for the same bank: The supply of deposits determines loan growth, and the demand for loans drives deposit rates.…”

Section: Introductionmentioning

confidence: 90%

“…Second, it is possible that the causality runs exclusively in the opposite direction and governs the correlation between loan growth and deposit rates. For example, banks are exposed to a positive deposit shock (and therefore potentially decrease deposit rates) and as a result initiate lending activity (as in Gilje et al (2013)).…”

Section: Introductionmentioning

confidence: 99%

Banks’ Internal Capital Markets and Deposit Rates

Ben‐David¹,

Palvia²,

Spatt³

2017

J. Financ. Quant. Anal.

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It is commonly believed that deposit rates are determined primarily by supply: Depositors require higher deposit rates from risky banks, thereby creating market discipline. An alternative perspective is that market discipline is limited (e.g., due to deposit insurance and/or enhanced capital regulation) and that internal demand for funding by banks determines rates. Using branch-level deposit rate data, we find little evidence for market discipline as rates are similar across bank capitalization levels. In contrast, banks’ loan growth has a causal effect on deposit rates; for example, branches’ deposit rates are correlated with loan growth in other states in which their bank has some presence, suggesting internal capital markets help reallocate the bank’s funding.

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Exporting Liquidity: Branch Banking and Financial Integration

Cited by 173 publications

References 28 publications

The geography of banking: Evidence from branch closings

The geography of banking: Evidence from branch closings

Financial Flexibility: At What Cost?

Banks’ Internal Capital Markets and Deposit Rates

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