Bank Integration and Business Volatility in the U.S.

30 Pages Posted: 14 Jul 2001

See all articles by Donald P. Morgan

Donald P. Morgan

Federal Reserve Bank of New York

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Bertrand Rime

Swiss National Bank - Banking Studies Section

Date Written: May 2001

Abstract

We investigate how bank migration across state lines over the last quarter century has affected the size and covariance of business fluctuations within states. Starting with a two-state version of the unit banking model in Holmstrom and Tirole(1997), we conclude that the theoretical affect of integration on business cycle size is ambiguous, as some shocks are dampened by integration, but others are amplified. Empirically, we find that integration diminishes employment growth fluctuations within states, and decreases the deviations in employment growth across states. Business cycles within states become smaller with integration, in other words, but more alike. Our results for the United States bear on the financial convergence underway in Europe, where banks remain highly fragmented across nations.

JEL Classification: G21, E44, G28

Suggested Citation

Morgan, Donald P. and Strahan, Philip E. and Rime, Bertrand, Bank Integration and Business Volatility in the U.S. (May 2001). FRB of New York Staff Report No. 129; EFA 2001 Barcelona Meetings. Available at SSRN: https://ssrn.com/abstract=276712 or http://dx.doi.org/10.2139/ssrn.276712

Donald P. Morgan (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
Research Department
New York, NY 10045
United States
212-720-6573 (Phone)

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bertrand Rime

Swiss National Bank - Banking Studies Section ( email )

Boersenstrasse 15
CH-8022 Zurich
Switzerland
+41 1 631 34 19 (Phone)
+41 1 631 81 09 (Fax)

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