Does the Geographic Expansion of Bank Assets Reduce Risk?

Martin Goetz, Luc Laeven, Ross Levine

NBER Working Paper No. 20758
Issued in December 2014
NBER Program(s):CF, EFG, IFM

We develop a new identification strategy to evaluate the impact of the geographic expansion of bank holding company (BHC) assets across U.S. metropolitan statistical areas (MSAs) on BHC risk. We find that the geographic expansion of bank assets reduces risk. Moreover, geographic expansion reduces risk more when BHCs expand into economically dissimilar MSAs, i.e., MSAs with different industrial structures and business cycles. We do not find that geographic diversification improves loan quality. Our results are consistent with arguments that geographic expansion lowers risk by reducing exposure to idiosyncratic local risks and inconsistent with arguments that geographic expansion, on net, increases risk by reducing the ability of BHCs to monitor loans and manage risks.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20758

Users who downloaded this paper also downloaded* these:
Jiang, Levine, and Lin w20760 Competition and Bank Opacity
Levine, Lin, and Xie w20863 Spare Tire? Stock Markets, Banking Crises, and Economic Recoveries
David, Henriksen, and Simonovska w20769 The Risky Capital of Emerging Markets
Bianchi and Bigio w20490 Banks, Liquidity Management and Monetary Policy
Levine, Lin, and Xie w22544 Geographic Diversification and Banks’ Funding Costs
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us