US Banking Deregulation, Small Businesses and Interstate Insurance of Personal Income
Yuliya S. Demyanyk
Federal Reserve Banks - Federal Reserve Bank of Cleveland
BI Norwegian Business School
Bent E. Sørensen
University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 5863
We estimate the effects of deregulation of U.S. banking restrictions on the amount of interstate personal income insurance during the period 1970-2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific shocks to output. We find that income insurance improved after banking deregulation, and that this effect is larger in states where small businesses are more important. We further show that the impact of deregulation is stronger for proprietors' income than other components of personal income. Our explanation of this result centers on the role of banks as a prime source of small business finance and on the close intertwining of the personal and business finances of small business owners. Our analysis casts light on the real effects of bank deregulation, on the risk sharing function of banks, and on the integration of bank markets.
Number of Pages in PDF File: 57
Keywords: Financial deregulation, integration of bank markets, interstate risk sharing, small business finance
JEL Classification: G21, G28
Date posted: December 20, 2006
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