Bank Branches and Lending in the Euro Area – A Panel Analysis

Since the Great Financial Crisis, the number of bank branches has decreased significantly as credit institutions have sought to cut costs and increase efficiency. However, such developments may have adverse effects on households’ access to finance. Using a panel dataset for the Euro area from 2010 to 2023, this paper aims to uncover how the changes in bank branch density have affected lending growth. Our results indicate that, after controlling for a series of macroeconomic and financial indicators, a reduction in bank branch density of 10 per 100,000 people leads to a decrease of 0.2% in the yearly growth rate of mortgage loans. These developments have important consequences both for the health of the banking sector and the real-estate sector, as well as households’ welfare and ability to build wealth. On the other hand, the reduction of bank branches did not affect consumer loan issuance.