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Bank Geographic Diversification and Systemic Risk

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  • Yongqiang Chu
  • Saiying Deng
  • Cong Xia
  • Philip Strahan

Abstract

Exploiting staggered interstate banking deregulation as exogenous shocks to bank geographic expansion, we examine the causal effect of geographic diversification on systemic risk. Using the gravity-deregulation approach, we find that bank geographic diversification leads to higher systemic risk measured by the change in conditional value at risk ($\Delta$CoVaR) and financial integration (Logistic($R^{2}))$. Furthermore, we document that geographic diversification affects systemic risk via its impact on asset similarity. The impact of geographic diversification on systemic risk is stronger in BHCs located in states comoving less with the U.S. aggregate economy.

Suggested Citation

  • Yongqiang Chu & Saiying Deng & Cong Xia & Philip Strahan, 2020. "Bank Geographic Diversification and Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 33(10), pages 4811-4838.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:10:p:4811-4838.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz148
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