Geographic Diversification in Banking and its Implications for Bank Portfolio Choice and Performance

Donald P. Morgan · Katherine A. Samolyk

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Banking stability, regulation, efficiency Banking Sector Performance and Management Banking Systems and Strategies

Abstract

This paper documents the trend in geographic diversification among U.S. bank holding companies since 1994, and investigates how diversification relates to BHC portfolio choice and performance. Diversification is associated with significantly higher loan-asset ratios at BHCs of all sizes, but not with improvements in loan performance or returns (on assets or equity). Diversification increases the lending capacity of banks and the banking system, but it does not increase the profits of individual banks or reduce the risk in their portfolios.

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References

1997Diversification, Size, and Risk at Bank Holding Companies 1993Resolving the scale efficiency puzzle in banking 1997The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function 1992Changes in corporate performance associated with bank acquisitions 1994The overall gains from large bank mergers 2001The Effects of Geographic Expansion on Bank Efficiency 1995The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been 1997Do Mergers Improve the X-Efficiency and Scale Efficiency of U.S. Banks? Evidence from the 1980s

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