A Spatial Model of Bank Branches in Canada

This study explores the market structure of the Canadian banking industry at the postal-code level. In particular, we study the effect of geographic and industrial concentration on the density of bank branches. Our analysis makes use of a novel dataset of bank branch locations across Canada over the period 2008 to 2018.

We employ a spatial panel model with two-way fixed effects that accounts for spatial spillovers across adjacent postal codes. This encompassing model allows us to disentangle the effect of market structure from spillovers in adjacent regions.

Our main finding is that market structure is not correlated with the density of bank branches. However, we do find that branch density is significantly correlated with socioeconomic characteristics of the postal code. We also find that the big five banks tend to avoid markets dominated by smaller banks and credit unions. Similarly, smaller banks and credit unions avoid markets with a high concentration of the big five banks.