Abstract

It is often argued that branching stabilizes banking systems by facilitating diversification of bank portfolios; however, previous empirical research on the Great Depression offers mixed support for this view. Using data on national banks from the 1920s and 1930s, we show that branch banking raises the level of competition and increases exit from the banking system. This consolidation strengthens the system as a whole without necessarily strengthening the branch banks themselves. Our empirical results suggest that the effects that branching had on competition were quantitatively more important than geographical diversification for bank stability in the 1920s and 1930s.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 1293-1328
Launched on MUSE
2006-07-17
Open Access
No
Archive Status
Archived 2007
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