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Title: Branching for Caution: Banks in England and Wales during the 1878 Financial Panic

 Abstract: Using a bank-level dataset on joint-stock banks in England and Wales in the 1870s and 1880s, I show that exposure to an unexpected financial panic resulting from the failure of the City of Glasgow Bank in 1878 led to the geographical expansion of banks affected. My baseline estimation includes bank and year fixed effects. I also construct an instrumental variable based on the number of newspapers in the towns of bank headquarters before the panic. Banks with smaller initial branch networks expanded their branch networks to diversify geographic risks in response to the loss of liquid assets resulting from the drainage of deposits. Banks with larger initial branch networks expanded less than small banks but they collected more deposits.