Bank branches have been disappearing in some major metropolitan areas, as their populations and economic activity decline. Our research suggests that brick-and-mortar branches provide tangible benefits to consumers, especially in low- and moderate-income neighborhoods. When branches are located in these areas, borrowers living there default less and have greater access to credit.
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.
With the increasing use of Internet and mobile banking, some analysts have been predicting the end of brick-and-mortar banks. But others maintain that branches provide bankers with invaluable information about borrowers and conditions in the local economy and are not likely to be done away with any time soon. To shed some light on the issue, I study whether financial institutions were able to make better loans during the financial crisis when they had a bank branch in the area. I find they were, which suggests their local presence gave them financially valuable information.
