Abstract
We study the relationship between bank geographic complexity and risk using a unique dataset of 96 global bank holding companies (BHCs) over 2008–2016. From data on the affiliate network of internationally active banking entities, we construct a measure of geographic coverage and complexity for each BHC. We find that higher geographic complexity heightens banks’ capacity to absorb local economic shocks, reducing their risk. However, higher geographic complexity can also help banks soften the impact of prudential regulation, increasing their risk. Bank geographic complexity therefore has a Janus face, decreasing some but increasing other aspects of bank risk.
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