What Drives Interregional Bank Branch Closure? The Case of Japan's Regional Banks in the Post-Deregulation Period

Since the elimination of branch restrictions in the Japanese banking sector, the number of interregional branches closing has exceeded that of new branches being established. By analyzing branch data covering 2000–2012, we find that the probability of interregional branch closures is higher than that of intraregional branch closures because interregional branching worsens banks’ cost efficiency. Further, we show that the geographical distance between branches does not increase the probability of intraregional branch closures, but it does raise the probability of interregional branch closures. Moreover, banks that focus on SME markets have a higher probability of closure in interregional markets than those that focus on household loan markets.