Does geographic expansion of banks increase, decrease or have no impact on their funding cost?

Does geographic expansion of banks increase, decrease or have no impact on their funding cost?

by Ross Levine

 

It is crucial to understand the impact of the geographic diversification of a bank’s assets on its funding costs because (1) the costs to banks of raising capital, issuing other securities, and attracting deposits affect the allocation and pricing of bank credit, which are central to economic growth and the distribution of income and (2) banks expand geographically for many reasons, raising questions about the impact of such expansions on funding costs and bank lending. Existing research, however, offers differing perspectives on whether the geographic diversification of bank branches and subsidiaries increases, decreases, or has no effect on the costs to banks of raising deposits and issuing securities. This research will provide the first empirical evaluation of the impact of geographic expansion on the costs of a bank’s interest-bearing liabilities, which account for about 90 percent of bank liabilities. A crucial methodological contribution is the development of an empirical strategy to identify the impact of an exogenous source of variation in the geographic expansion of a bank on its funding costs.

The Origins of Financial Development: The African Slave Trade and Modern Finance

The Origins of Financial Development: The African Slave Trade and Modern Finance

by Ross Levine

This research will evaluate the impact of the 1400-1900 African slave trade on household and firm financing constraints today. The study of the historical determinants of finance is important both for understanding the evolution of the institutions that shape the operation of financial systems and for providing guidance to current policy analysts and policymakers about key barriers to the development of more efficient financial markets and institutions. The project will exploit cross-country and cross-ethnic group differences in the intensity with which people were enslaved and exported from Africa during the 1400-1900 period to identify the impact of the historic slave trade on modern financial systems. This work will provide evidence on whether the slave trade—which has had an enduring, deleterious effect on social cohesion—continues to harm the operation of credit institutions.

Topics

Capital flows

Initiatives

Financial Globalization

Do Antitakeover Laws Affect Technological Change? International Evidence

Do Antitakeover Laws Affect Technological Change? International Evidence

by Ross Levine

Does removing impediments to corporate takeovers spur, slow, or have no effect on technological innovation? This research will provide the first international evaluation of whether and how antitakeover laws affect innovation. The research will use data on changes in laws governing corporate takeovers over the period from 1976 through 2006 for 97 countries. The research will use data on patents and citations to those patents to measure innovation. Preliminary results suggest that reducing legal and regulatory barriers to takeovers accelerates innovation.

Topics

Capital flows

Initiatives

Financial Globalization