Does geographical proximity matter in determining the profitability of banks?

ABSTRACT

Despite the existence of a burgeoning literature on bank profitability, yet, none of them gave due consideration to geographical proximity. We fulfill such a gap by analyzing the effects of COVID-19 on the profitability of top-rated banks. Findings confirm the prevalence of spatial dependence at both the global and sub-global with feedback effects being systematically higher than spillover effects. Our study uncovers evidence of a COVID-19 induced decline in asset utilization. Findings advocate sharing economy as a potential tool to banks in combating any future pandemic risk with regionalized approach to supervision being deemed better than its globalized counterpart. © 2022 The Society for Policy Modeling