Essays on the spatial aspects of banking

This study consists of three theoretical essays, which examine how the interaction of the competitive and regulatory environment of banks influences their performance. More precisely, this work provides answers to the questions “How does bank competition impact bank lending and risk?” and, “How does the regulatory framework interfere with bank competition?”. Therefore, firstly, in the introductory chapters this book applies the theory of economic geography to the banking industry. It clarifies central notions of banking competition. The main functions that banks perform are characterized by information production for opaque assets and insurance provision for uninformed investors. The production and the exchange of information between banks and their customers, however, cause significant transaction costs across geographical distance for both parties. To investigate the precise impact of geography on competition in banking markets, the introduction formulates and answers the following questions. Initially, the question is: “How may geographical distance be broken down in banking terms?” Then the author analyzes: “How do banks and customers bridge the geographical gap between them and their customers and how does this knowledge help us to understand banks' competitive environment and their market structure?” Subsequently, given the long-term trend towards falling transaction costs in the banking industry, the author examines: “What factors led to falling transaction costs?” Finally, Daniel Heddergott investigates: “How the transformation process shapes the banking market and the competitive environment?”and “Is distance still relevant to banking?”.