Geospatial Evidence for Diversification Effects in Branch Banking Deposit Stability: A Case Study in Fracking

Oct 12, 2021 | NURJ Online Volume 7

Jacob Wiesenthal is a senior in Weinberg College from Anthem, Arizona. He is majoring in Economics and Geography with a focus on health and population econometrics. His work in digital healthcare engagement has helped thousands of Arizonans schedule COVID-19 vaccine appointments, and on campus he helps manage a 501(c)(3) nonprofit startup that converts leftover foreign currency to fund summer camps for underprivileged youth in Chicago. Jacob will be continuing his quantitative research work in the field of healthcare economics in Cambridge, Massachusetts following graduation.

In a nutshell, what is your research topic?

The core idea behind my research is to introduce natural geography to the study of banking and to assess the effect on deposit variance of having a geographically diverse portfolio of branches. In particular, I wanted to take advantage of a unique case study in fracking in order to design a causal model implying geographic diversity as a means for greater financial stability and leverage.

How did you come to your research topic?

I was initially inspired by CAPM and the idea that a firm could engage in risk-taking activities without taking on the full magnitude of that risk. I wondered whether this insight could be applied in contexts other than investments, and if it might make sense to consider geographical places like assets. I decided that branch banking was the ideal topic for investigating this because of the public records kept by the FDIC which offered a key link between standardized performance metrics and locations. Likewise, I realized that the economic exogeneity and geographic derivation of fracking made it a great candidate for exploring causality.

Where do you see the future direction of this work leading? How might future researchers build on your work, or what is left to discover in this field?

Now that it is understood how geographic diversification impacts risk in both deposits and lending, banks can optimize their locational strategy to minimize risk and ultimately increase their leverage. Moreover, future research will likely emphasize the prospect of online banking and the ability of fintechs to achieve geographic diversification by the implicit accessibility of their platforms. This notion demonstrates that even in a predominantly digital world, geography remains a driving force behind economic progress.

Where are you heading to after graduation?

I will be joining a healthcare strategy consulting firm in Cambridge, Massachusetts where I can connect my background in health and population economics with my love for quantitative research.


The heterogeneity of regional economies in the United States provides branch banks with plentiful opportunities to mitigate risk through geographic diversification. This paper introduces natural geography to the discussion of diversification in branch banking to examine the dynamics of deposit stability in the context of an economic shock. By developing a microeconomic index of geographic diversity by county, I assess how the emergence of hydraulic fracturing, or “fracking,” in the early 2010s impacted industry concentrations across five distinct regions. A regression discontinuity framework is applied to counties who concurrently began fracking operations and, as a counterfactual, the counties with which they share a border. Positive spatial autocorrelation of deposit variances between proximate branches is estimated to quantify the degree to which deposit stability is derived by location. Given the exogeneity of natural gas shale play discoveries, I construct a difference-in-differences model that identifies the directionality in which geographic diversity augmented the effect of fracking on deposit stability. My analysis reveals that geographically diverse branches mitigated the shock’s impact on deposits and in some cases even became more stable. I conclude that geographic diversification is positively associated with deposit stability, and that both interstate bank consolidations and online banking services are uniquely positioned to leverage this diversification advantage.

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