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How Do Banks Choose Where to Place Branches?

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Prior to the 1980s, U.S. banks faced restrictions on where they could open branches, which essentially confined them to their home states. Subsequent deregulation over the next two decades eliminated these restrictions, drastically changing the landscape of the banking industry. Some banks grew rapidly, while many others exited the market due to either competitive forces or consolidation. The main effect of deregulation was to allow banks to open branches in new locations; as such, this episode provides a natural experiment to study the mechanisms behind the sorting patterns that emerge from spatial expansion. Said another way: How do banks choose where to locate? My (Nicholas') recent working paper "Banks in Space" — co-authored with Ezra Oberfield, Esteban Rossi-Hansberg and Derek Wenning — proposes a spatial theory of bank organization that clarifies empirical trends from this deregulation period and spotlights the strategies underlying expansion.

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  • Lindsay Li & Nicholas Trachter, 2025. "How Do Banks Choose Where to Place Branches?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 25(06), February.
    • Handle: RePEc:fip:fedreb:99542
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    File URL: https://www.richmondfed.org/publications/research/economic_brief/2025/eb_25-06
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    Keywords

    banking; deregulation;

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