The great expansion: The exceptional spread of bank branches in interwar France

Abstract

Using newly collected data at the city level between 1910 and 1938, this article shows that, after World War I, France experienced an unprecedented expansion in bank branches mostly due to the creation of temporary branches in rural areas. The banking crisis in early 1930s paused this expansion. Nevertheless, the number of bank branches per capita remained four times higher than before the war. Also, the expansion of bank branches was not associated with an increase in the ratio of bank assets to national income. These findings re-evaluate the Great Reversal hypothesis in banking and reveal the disconnection between geographical expansion of banks and standard measures of financial development. Both trends can be reconciled if one considers that banks are multi-product firms – not just lenders – and that competition for new customers is not always associated with greater credit activity.