NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bank Integration and State Business Cycles

Donald Morgan, Bertrand Rime, Philip Strahan

NBER Working Paper No. 9704
Issued in May 2003
NBER Program(s):   CF   EFG   ME

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.

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Document Object Identifier (DOI): 10.3386/w9704

Published: Morgan, Donald P., Bertrand Rime and Philip E. Strahan. "Bank Integration And State Business Cycles," Quarterly Journal of Economics, 2004, v119(4,Nov), 1555-1584.

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