Is there an advantage to banks in diversifying loan portfolios by geography? As we learned during the last downturn, geography can have a significant negative impact on banks.
Most banks serve a geographical area largely defined by a political outline, such as a set of counties. Other banks choose less defined regions, such as the “Tri-city Area” or “Northern Virginia.” While these defined service areas may be fine for marketing purposes, when it comes to operating efficiency, banks may want to think along other dimensions of geography. In this article, we explore how banks can gain more efficiencies by allocating resources to areas other than political areas.