How does banking expansion influence city development and synergy? — A new perspective from government debts

Abstract

This study exploits the regulatory shock of banking deregulation in China to examine how the geographical expansion of city commercial banks (CCBs) influences regional development and economic synergy. Employing a refined identification strategy, we demonstrate that bank expansion significantly promotes both local economic growth and inter-regional coordination. Specifically, we find that each new sub-branch entry leads to a 0.7 % increase in city-level development. Moreover, we identify a novel transmission mechanism whereby expanding banks support local governments through substantial subscriptions to urban investment bonds, thereby facilitating infrastructure development. Our findings illuminate the institutional linkages between banking institutions and local governments, suggesting that multi-market CCBs serve as an effective policy instrument for addressing local financial volatility and advancing coordinated regional development initiatives.