DP13741 The Geographic Flow of Bank Funding and Access to Credit: Branch Networks, Local Synergies, and Competition

Author(s): Victor Aguirregabiria, Robert Clark, Hui Wang
Publication Date: May 2019
Keyword(s): Access to credit, Bank Competition, Branch networks, Economies of scope between deposits and loans, Geographic flow of bank funds
JEL(s): G21, L13, L51
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13741

Geographic dispersion of depositors, borrowers, and banks may prevent funding from flowing to areas of high loan demand, limiting credit access. We provide evidence of geographic imbalance of deposits and loans, and develop a methodology for investigating the contribution to this imbalance of (i) branch networks, (ii) market power, and (iii) scope economies, using US bank-county-year level data. Results are based on a novel measure of deposits and loans imbalance, and estimation of a structural model of bank competition that admits interconnections across locations and between deposit and loan markets, thereby permitting counterfactuals highlighting the role of the three factors.