Geographic Diversification and Banks’ Funding Costs

Ross Levine (), Chen Lin and Wensi Xie

No 22544, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We assess the impact of the geographic expansion of bank assets on the cost of banks’ interest-bearing liabilities. Existing research suggests that expansion can both intensify agency problems that increase funding costs and facilitate risk diversification that decreases funding costs. Using a newly developed identification strategy, we discover that the geographic expansion of banks across U.S. states lowered their funding costs, especially when banks are headquartered in states with lower macroeconomic covariance with the overall U.S. economy. The results are consistent with the view that geographic expansion offers large risk diversification opportunities that reduce funding costs.

JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-ban
Note: CF
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Citations: View citations in EconPapers (3)

Published as Ross Levine & Chen Lin & Wensi Xie, 2021. "Geographic Diversification and Banks’ Funding Costs," Management Science, vol 67(5), pages 2657-2678.

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Journal Article: Geographic Diversification and Banks’ Funding Costs (2021)
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