Bank Integration and State Business Cycles

41 Pages Posted: 19 Apr 2003

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 4, 2002

Abstract

Interstate banking has ambiguous theoretical effects on state business volatility, but the (net) empirical effect has been stabilizing. In theory, bank diversification across states diminishes the impact of bank capital shocks on state activity, but amplifies the impact of firm collateral shocks. Empirically, we find that year-to-year employment growth fluctuations within states fall as banks in that state integrate (via holding companies) with banks in other states. The magnitudes are large. Bank integration matters most significantly in states with very undiversified economies. Consistent with our model, we also find that integration also weakens the correlation between bank capital growth and growth in state employment and bank lending but strengthens the correlation between changes in housing prices and employment and lending.

JEL Classification: G2

Suggested Citation

Morgan, Donald P. and Strahan, Philip E. and Rime, Bertrand, Bank Integration and State Business Cycles (December 4, 2002). Available at SSRN: https://ssrn.com/abstract=304362 or http://dx.doi.org/10.2139/ssrn.304362

Donald P. Morgan (Contact Author)

Federal Reserve Bank of New York ( email )

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Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
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HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

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Bertrand Rime

Swiss National Bank - Banking Studies Section ( email )

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Switzerland
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+41 1 631 81 09 (Fax)

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