Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

Abstract: Banks’ branch networks are contracting rapidly in many countries. We study the effects of these large-scale branch closures on firms’ access to credit and real economic activity. Our empirical setting is Sweden, where two thirds of all bank branches have closed in the past two decades. Using a shift-share instrument and micro data comprising the near-universe of Swedish firms and bank branches, we document that corporate lending declines substantially following branch closures, mainly via reduced lending to small, collateral-poor, and less productive firms. The reduced credit supply in turn causes contractions in the real activity of incumbent firms, as well as lower entry of new firms. The disappearance of bank branches thus has far-reaching implications for the economy.

Keywords: Banks; branch closures; credit supply; soft information

JEL-codes: D22; G21; G32; R12; R32

Language: English

61 pages, First version: February 1, 2024. Revised: September 1, 2025. Earlier revisions: September 1, 2025.

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