Template-Type: ReDIF-Paper 1.0
Author-Name: Sebastian Doerr
Author-X-Name-First: Sebastian
Author-X-Name-Last: Doerr
Title: Bank geographic diversification and funding stability
Abstract: The recent banking turmoil has renewed focus on banks' branch networks and deposit taking activity. This paper provides novel evidence that the geographic diversification of banks' deposit base enhances their funding stability. I establish that banks with greater diversification exhibit higher dispersion in deposit growth rates across their branches; and lower volatility in deposit growth rates over time. Subsequently, banks benefit from lower deposit rates, partly by shifting from time deposits to cheaper demand deposits. These patterns are consistent with diversification improving funding stability. I then show that deposit diversification spurs banks' liquidity creation and small business lending, with positive effects for real economic activity. The funding stability channel of geographic diversification is distinct from previous findings on banks' asset-side diversification. It also highlights benefits of branch networks for bank lending that go beyond local information acquisition.
Creation-Date: 2024-10
File-URL: https://www.bis.org/publ/work1221.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1221.htm
File-Format: text/html
Number: 1221
Keywords: bank diversification, deposits, funding stability, liquidity creation, risk
Classification-JEL: G20, G21, G28
Handle: RePEc:bis:biswps:1221