A Spatial Panel Model of Bank Branches in Canada

Heng Chen and Matthew Strathearn

Working Paper

This research aims to empirically analyze the spatial bank branch network in Canada. The authors study the market structure (both industrial and geographic concentrations) via its own or adjacent postal areas. The empirical framework of this study considers branch density (the ratio of the total number of branches to area size) by employing a spatial two-way fixed effects model. The main finding of this study is that there are no effects associated with market structure, however, there are strong spatial within and nearby effects associated with the socioeconomic variables. In addition, the authors also study the effect of spatial competition from rival banks: they find that large banks and small banks tend to avoid markets dominated by their competitors.

Keywords: Agglomeration, Branch density, Cash accessibility, Entry and exit, Market structure, Spatial two-way fixed effects

JEL classification: L1, R, R3