Bank Regulation and Monetary Policy Transmission: Evidence From the U.S. States Liberalization

54 Pages Posted: 28 Sep 2018 Last revised: 18 Oct 2018

See all articles by Aeimit Lakdawala

Aeimit Lakdawala

Wake Forest University - Department of Economics

Raoul Minetti

Michigan State University - Department of Economics

Matthew Schaffer

University of North Carolina (UNC) at Greensboro - Department of Economics

Date Written: September 1, 2018

Abstract

This paper studies the impact of geographic banking restrictions on monetary policy transmission. Exploiting the staggered deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate deregulation signifi cantly increased the responsiveness of bank lending to monetary shocks. This effect occurred primarily for small and illiquid banks, pointing to a strengthening of the bank lending channel. Changes in bank market structure and loan portfolio composition are unlikely to explain the effect of deregulation. This instead reflects a reduced propensity of small banks affiliated with complex holding companies to insulate borrowers from monetary contractions.

Keywords: Bank Regulation, Bank Lending Channel, Monetary Policy

JEL Classification: E44, E52, G21

Suggested Citation

Lakdawala, Aeimit and Minetti, Raoul and Schaffer, Matthew, Bank Regulation and Monetary Policy Transmission: Evidence From the U.S. States Liberalization (September 1, 2018). Available at SSRN: https://ssrn.com/abstract=3224689 or http://dx.doi.org/10.2139/ssrn.3224689

Aeimit Lakdawala (Contact Author)

Wake Forest University - Department of Economics ( email )

Winston Salem, NC
United States

HOME PAGE: http://aeimit.weebly.com

Raoul Minetti

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7349 (Phone)
517-432-1068 (Fax)

Matthew Schaffer

University of North Carolina (UNC) at Greensboro - Department of Economics ( email )

P.O. Box 26170
Greensboro, NC 27402-6165
United States

HOME PAGE: http://matthewschaffer.weebly.com/

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