Scandinavian Working Papers in Economics

SIFR Research Report Series,
Institute for Financial Research

No 30: Bank Integration and State Business Cycles

Donald Morgan (), Bertrand Rime and Philip E. Strahan
Additional contact information
Donald Morgan: Federal Reserve Bank of New York
Bertrand Rime: Swiss National Bank
Philip E. Strahan: Swiss National Bank

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

JEL-codes: E32; E50; G21

35 pages, September 15, 2004

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