Research On How The Geographic Expansion Of City Commercial Banks Influence Operating Risks

The City Commercial Bank(CCB)is a special group of commercial banks in China,it is formed in a specific historical background,with regional and political characteristics.However,during the rapid development of the CCBs,they gradually differentiated,different CCBs face different problems,and will choose different ways of development.Among them,the geographic expansion strategy is a very critical part of the choice,aiming at the local small and medium-sized banks,or pursuing to become big banks with regional and even national influence,the CCBs need to make comprehensive assessments objectively.During the process of the CCBs' geographic expansion,the most common mode is to set up branches in different areas directly.When choosing the location of the nonlocal branches,most of the CCBs are more inclined to consider the cities with short geographic distance,fast economic development,large market capacity,and similar market conditions.The existing literafture provides conflicting views about the impact of geographic expansion on the CCBs' operating risks.This paper examines the impact from two aspects,the degree of CCBs' geographic dispersion of loans and assets,using the data of 15 cities in the Yangtze River Delta Area from 2007 to 2015.Empirical results show that,in general,with the geographic expansion,the loans and assets of the CCBs are more dispersed geographically,and the operating risks faced by the CCBs will be significantly reduced.At the same time,in order to eliminate the possible endogenous disturbance,this paper constructs an exogenous instrumental variable to measure the geographic expansion of the CCBs.The results of the two-stage least squares regression also show that the increase of geographic expansion can reduce the CCBs' operating risks.This paper further studies the possible mechanisms of how the geographic expansion of the CCBs reduce their operating risks,and examines two hypotheses.The results show that the geographic expansion of the CCBs may reduce the operating risks by increasing the quality of their loans,but there is no evidence that the industry concentration of local banks is the possible mechanism.It is concluded in the empirical analysis of this paper that the geographic expansion has significantly reduced the operating risks of the CCBs,but it does not mean that the higher degree of geographic expansion is the better,and this paper does not deny the necessity of supervising the CCBs' geographic expansion.Combined with the actual situation in China,this paper also put forward relevant policy suggestions to the CCBs and the regulatory authorities respectively.