Presentation Title: Geographical Expansion in US Banking: A Structural Evaluation
Abstract:
We study the effects of idiosyncratic risk, geographical diversification and concentration in the US banking industry, using a rich yet tractable spatial model of deposit-taking and lending across multiple regions. Despite its complexity, the model lends itself to a transparent calibration strategy using micro-level data on deposits and spreads. We quantify the effects of changes in the structure of the banking industry on deposit spreads and break them down into two components: concentration (markups) and diversification (risk premia). For smaller, poorer counties, we find significant diversification benefits from the wave of geographical expansion, which more than offset the negative impact of consolidation on competition.
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