Bank branch location and stability during distress

• Published in: Journal of financial economic policy Vol. 6; no. 2; pp. 133 - 151
• Main Authors: Hendrickson, Jill M, Nichols, Mark W, Fairchild, Daniel R
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Group Publishing Limited 01-01-2014
• Subjects: Balance sheets; Bank deposits; Bank failures; Banking; Banking industry; Banks; Branch banking; Commercial banks; Economic conditions; Economic crisis; Economics; Electronic banking; Failure; Finance; Financial crisis; Financial services; Florida; Georgia; Interstate banking; Interstate Banking & Branching Efficiency Act 1994-US; Location; Macroeconomics; Market; Markets; Networks; Psychological distress; Regulation; Stability; Florida; United States > US; Georgia; Bank failures; E44; G28; Branch banking; G21; Financial crisis
• ISSN: 1757-6385; 1757-6393
• DOI: 10.1108/JFEP-07-2013-0026

Purpose
– The purpose of this paper is to examine the impact of bank branch location on the likelihood of bank failure during the most recent financial crisis.
Design/methodology/approach
– This paper estimates the probit regression to identify the causes of bank failures and attempts to determine the role of branch location in bank performance.
Findings
– Using data from failed and surviving banks in Georgia and Florida, this paper finds that diversifying the balance sheet and operating in more competitive markets reduced failure rates, but branching intensity, measured by number of branches and distance of branches from the home office did not significantly reduce the probability of failure. This suggests that, at least in today
'
s market, it is not important to bank stability to have a branching network a significant distance from the home office.
Originality/value
– This paper carefully considers the role of branch location in the likelihood of bank failure during financial distress. As such, it contributes to the historical policy debate regarding regulation prohibiting or minimizing banks
'
ability to branch. It also contributes to our understanding of how banks structure their branching networks in the contemporary banking environment.