TY  - JOUR
AU  - Carlson,Mark
AU  - Mitchener,Kris James
TI  - Branch Banking, Bank Competition, and Financial Stability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11291
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11291
L1  - http://www.nber.org/papers/w11291.pdf
N1  - Author contact info:
Mark Carlson
Federal Reserve Board
20th and Constitution Ave., NW
Washington, DC 20551
E-Mail: mark.a.carlson@frb.gov

Kris James Mitchener
Department of Economics
Leavey School of Business
Santa Clara University
Santa Clara, CA 95053
Tel: 408/554-4340
Fax: 408/554-2331
E-Mail: kmitchener@scu.edu
AB  - It is often argued that branching stabilizes banking systems by facilitating diversification of bank portfolios; however, previous empirical research on the Great Depression offers mixed support for this view. Analyses using state-level data find that states allowing branch banking had lower failure rates, while those examining individual banks find that branch banks were more likely to fail. We argue that an alternative hypothesis can reconcile these seemingly disparate findings. Using data on national banks from the 1920s and 1930s, we show that branch banking increases competition and forces weak banks to exit the banking system. This consolidation strengthens the system as a whole without necessarily strengthening the branch banks themselves. Our empirical results suggest that the effects that branching had on competition were quantitatively more important than geographical diversification for bank stability in the 1920s and 1930s.
ER  -