Move a Little Closer? Information Sharing and the Spatial Clustering of Bank Branches

Abstract

We study how information sharing between banks influences the geographical clustering of branches. A spatial oligopoly model first explains why branches cluster and how information sharing impacts price competition and equilibrium clustering. With data on 56,555 branches of 614 banks in 19 countries between 1995 and 2012, we test key model hypotheses. We find that information sharing increases branch clustering as banks open branches in localities that are new to them but that are already served by other banks. This branch clustering is associated with less spatial credit rationing as information sharing allows firms to borrow from more distant banks.