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Review of Finance Vol. 25 No. 4 2021

“Sorry, We're Closed” Bank Branch Closures, Loan Pricing, and Information Asymmetries

Diana Bonfim1; Gil Nogueira2; Steven Ongena3,4

1 Banco de Portugal and Católica Lisbon School of Business and Economics · 2 NYU Stern School of Business · 3 University of Zurich · 4 Swiss Finance Institute, KU Leuven and CEPR

open access

Abstract

We study local loan conditions when banks close branches. In places where branch closures do not take place, firms that purposely switch banks receive a sixty-three basis points (bps) discount. However, after the closure of nearby branches of their credit-granting banks, firms that locally and hurriedly transfer to other banks receive no such discount. Yet, the loan default rate for the latter (more expensive) transfer loans is on average a full percentage point lower than that for the former (cheaper) switching loans. This suggests that transfer firms are of “better” quality than switching firms. In sum, even if local markets remain competitive, when banks close branches, firms lose.

DOI
10.1093/rof/rfaa036
Volume
25
Issue
4
Pages
1211-1259
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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