Geographic Diversification and Banks’ Funding Costs

We assess the impact of geographic diversification on a bank’s costs interest-bearing liabilities. employ new identification strategy and discover that expansion across U.S. states lowered funding costs. Consistent with facilitating risk diversification, we find (1) fall more when banks expand into whose economies are less correlated banks’ state (2) reduces uninsured, but not insured, deposits. intensifying agency frictions, which puts upward pressures costs, liabilities in better-monitored better-run banks. This paper was accepted by Tomasz Piskorski, finance.