Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries

40 Pages Posted: 16 May 2003 Last revised: 2 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)

Date Written: May 2003

Abstract

Theory suggests that bank integration (financial integration generally) can magnify or dampen the business cycles, depending on the importance of shocks to firm collateral versus shocks to the banking sector. In this paper, we show empirically that bank integration across U.S. states over the late 1970s and 1980 dampened economic volatility within states. Internationally, however, we find that foreign bank integration, which advanced widely during the 1990s, has been either unrelated to volatility of firm investment spending or positively related to that volatility. The results suggest the possibility that business spending may become more volatile as countries open their banking sectors to foreign entry.

Suggested Citation

Morgan, Donald P. and Strahan, Philip E., Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries (May 2003). NBER Working Paper No. w9710. Available at SSRN: https://ssrn.com/abstract=408206

Donald P. Morgan

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 (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
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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)

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