Abstract: In 2006, the China Banking Regulatory Commission gradually deregulated city commercial banks' territoriality principle, and “going out” became the development trend of city commercial banks. This paper combines the Gravityderegulation Model and deregulation policy, which overcomes the endogeneity problem to a certain extent. The results find that the geographical diversification of city commercial banks inhibited their performance. As the distance between headquarters and branches continues to expand, the return on assets and the return on equity further reduce. However, the larger the relative market share is, the higher the return on assets and the return on equity will be. The results show that due to the deregulation of the territoriality principle, city commercial banks show a development trend of geographic diversification, and the geographic diversification of city commercial banks has an inhibitory effect on their performance, which reflects the information asymmetry and agency problems between headquarters and offsite branches.