U.S. Banking Deregulation, Small Businesses, and Interstate Insurance of Personal Income

54 Pages Posted: 23 Jun 2004  

Yuliya S. Demyanyk

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: September 2006

Abstract

We estimate the effects of deregulation of U.S. banking restrictions on the amount of interstate personal income insurance during the period 1970-2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific shocks to output. We find that income insurance improved after banking deregulation, and that this effect is larger in states where small businesses are more important. We further show that the impact of deregulation is stronger for proprietors' income
than other components of personal income. Our explanation of this result enters on the role of banks as a prime source of small business finance and on the close intertwining of the personal and business finances of small business owners. Our analysis casts light on the real effects of bank deregulation, on the risk sharing function of banks, and on the integration of bank markets.

Keywords: Financial deregulation, integration of bank markets, interstate risk sharing,small business finance

JEL Classification: G21,G28

Suggested Citation

Demyanyk, Yuliya S. and Ostergaard, Charlotte and Sørensen, Bent E., U.S. Banking Deregulation, Small Businesses, and Interstate Insurance of Personal Income (September 2006). EFA 2004 Maastricht Meetings Paper No. 4444. Available at SSRN: https://ssrn.com/abstract=557094 or http://dx.doi.org/10.2139/ssrn.557094

Yuliya S. Demyanyk

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

Research Department
East 6th & Superior
Cleveland, OH 44101-1387
United States

HOME PAGE: http://www.clevelandfed.org/Research/Economists/Demyanyk

Charlotte Ostergaard (Contact Author)

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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