Where the money is: branch network structure and bank profitability in Switzerland

Abstract

This paper investigates the impact of the geographic concentration of branch networks on bank profitability in Switzerland. Leveraging Switzerland's distinctive federalist fiscal structure, where communes set their own income tax rates, we also explore whether the tax burden of branch locations moderates this relationship. Using a hand-collected dataset of branch networks of commercial banks, we find that geographic branch network concentration positively affects bank profitability but only when banks concentrate their branches in low-tax communes. This suggests that the proximity to wealthy clients, who are more likely to reside in low-tax areas, enhances bank profitability.