Bank Integration and State Business Cycles

43 Pages Posted: 18 May 2003 Last revised: 1 Nov 2010

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: May 2003

Abstract

We investigate how the better integration of U.S. banks across states has affected economic volatility within states. In theory, the link between bank integration and volatility is ambiguous; integration tends to dampen the impact of bank capital shocks on state activity, but it amplifies the impact of firm collateral shocks. Empirically, the net effect has been stabilizing as year-to-year fluctuations in employment growth within states fall as that state's banks become better integrated (via holding companies) with banks in other states. The magnitudes are large, and the effects are most pronounced in states with relatively undiversified economies. Consistent with our model, we find the link between economic growth and bank capital within a state weakens with integration, whereas the link between growth and housing prices (a possible proxy for firm capital) tends to increase.

Suggested Citation

Morgan, Donald P. and Strahan, Philip E. and Rime, Bertrand, Bank Integration and State Business Cycles (May 2003). NBER Working Paper No. w9704. Available at SSRN: https://ssrn.com/abstract=408200

Donald P. Morgan

Federal Reserve Bank of New York ( email )

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

Philip E. Strahan (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
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Chestnut Hill, MA 02467-3808
United States
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617-552-0431 (Fax)

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

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