Distance, bank heterogeneity and entry in local banking markets

We examine the determinants of entry into Italian local banking markets during the period 1991-2002 and build a simple model in which the probability of branching in a new market depends on the features of both the local market and the potential entrant. Our econometric findings show that, all else being equal, banks are more likely to expand into those markets that are closest to their pre-entry locations. We also find that large banks are more able to cope with distance-related entry costs than small banks. Finally, we show that banks have become increasingly able to open branches in distant markets, probably due to the advent of information and communication technologies.