Capital Mobility and Regulation Frictions: Evidence from U.S. Lottery Winners

Abstract

Using a new source of quasi-experimental variation in bank funding from jackpot lottery winners, I show that funds are transmitted across markets, but allocations are substantially greater in the state in which the shock occurs. These results are not explained by local demand or bank charter type and are robust to comparing contiguous CBSA-pairs across state borders. Consistent with features of banking regulation reducing fund mobility (Section 109), the effects are more pronounced for banks for which the regulation binds. These results suggest that, despite the banking deregulation, state boundaries matter for capital mobility partly because of regulatory frictions.

Keywords: Financial Integration, Banking Regulation, Credit Supply, Policy Distortions, Mega Millions, Powerball

JEL Classification: G21, G28, G32