Banking Deregulation, Local Credit Supply, and Small Business Growth

49 Pages Posted: 20 Sep 2012 Last revised: 15 Jan 2014

Prasad Krishnamurthy

U.C. Berkeley School of Law; University of California, Berkeley - School of Law, Berkeley Center for Law, Business and the Economy; University of California, Berkeley

Date Written: August 15, 2013

Abstract

I show that the deregulation of bank branching in the United States lowered the sensitivity of small business growth to local credit supply. In urban markets, within-state deregulation of branching resulted in an 80% decrease in the effect of local deposit growth on the growth of establishments with 20-99 employees. Across-state deregulation had an effect of comparable size in county markets. I fi…nd effects of similar magnitude using employment growth and payroll growth as measures of business growth. Using the history of litigation over the scope of state bank regulation, I show these results continue to hold for states that deregulated branching for reasons that were unrelated to economic conditions. These fi…ndings suggest that bank deregulation played an important role in insuring small businesses against local shocks to credit supply.

Keywords: banking, deregulation, growth, credit

JEL Classification: G21, G28, E32

Suggested Citation

Krishnamurthy, Prasad, Banking Deregulation, Local Credit Supply, and Small Business Growth (August 15, 2013). Available at SSRN: https://ssrn.com/abstract=2149904 or http://dx.doi.org/10.2139/ssrn.2149904

Prasad Krishnamurthy (Contact Author)

U.C. Berkeley School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - School of Law, Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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