Bank Regulation and Monetary Policy Transmission: Evidence From the U.S. States Liberalization
54 Pages Posted: 28 Sep 2018 Last revised: 18 Oct 2018
Date Written: September 1, 2018
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 significantly 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: Suggested Citation