We empirically investigate how bank internationalization, organizational complexity, and geographical complexity stemming from foreign-affiliate type and geographic dispersion affect parent bank stability and profitability. We base our analysis on unique, hand-collected data for the worldwide locations of subsidiaries and branches of EU banks. Our results show that internationalization benefits bank stability by reducing default risk, and it is significantly associated with lower earnings volatility but poorer profitability. With regard to foreign organizational complexity, banks with both foreign subsidiaries and foreign branches are more stable than banks with foreign branches exclusively, which are more stable than banks with only foreign subsidiaries. Nevertheless, higher geographic complexity is associated with lower default risk, higher volatility in earnings, and higher profitability. Further investigations on the sovereign debt crisis and bank size indicate that the sovereign debt crisis in 2011 amplified the relationship and our findings mainly hold for small banks.

This paper provides new evidence on the benefits of local banking. Relying on a unique bank-level lending dataset covering 96 French counties from 2005 to 2013, completed by historical firm-level information on firm's main bank, our results reveal strong heterogeneities in the impact of local banking on SMEs' activity depending on firm size, both at the local market level and the bank-firm level. Bank proximity provides strong benefits only to micro firms, the smallest and most informationally opaque SMEs, through a higher presence of regional banks or of geographically focused banks, in both normal and crisis times. Further, we document an overall positive effect of long-lasting bank-firm relationship on SMEs economic activity in line with the continuation-lending hypothesis. Being loyal to either a regional or a national bank fosters micro firms value added, while this benefit only exists for larger SMEs which are loyal to a national bank. Furthermore, our results reveal a flight to quality phenomenon led by national banks in troubled times.