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Institute for Financial Research SIFR Research Report Series, Institute for Financial Research

No 30:
Bank Integration and State Business Cycles

Donald Morgan (), Bertrand Rime and Philip E. Strahan

Abstract: We investigate how integration of bank ownership across states has affected economic volatility within states. In theory, bank integration could cause higher or lower volatility, depending on whether credit supply or credit demand shocks predominate. In fact, year-to-year fluctuations in a state's economic growth fall as its banks become more integrated (via holding companies) with banks in other states. As the bank linkages between any pair of states increases, fluctuations in those two states tend to converge. We conclude that interstate banking has made state business cycles smaller, but more alike.

Keywords: Bank integration; Business volatility; Geographic diversification; (follow links to similar papers)

JEL-Codes: E32; E50; G21; (follow links to similar papers)

35 pages, September 15, 2004

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