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Credit Supply Shocks and Household Leverage: Evidence from the US Banking Deregulation

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  • Sarah Brown

    (Department of Economics, University of Sheffield)

  • Daniel Gray

    (Department of Economics, University of Sheffield)

  • Alberto Montagnoli

    (Department of Economics, University of Sheffield)

Abstract

We use a quasi-natural experiment framework provided by the staggered removals of interstate banking restrictions to identify the effect of increased availability of credit on household finances in the US. Analysing US household panel data, we explore the effects of state level banking deregulation on a range of aspects relating to household balance sheets including debt levels and leverage. Employing a range of panel data techniques to control for potential heterogeneity in the households’ financial situation, we show that deregulation increased both the propensity to hold debt and the amount of debt held. Our results also show an increased level of leverage following the credit supply shock. Furthermore, we find that the deregulation had a more pronounced effect on non-white headed households. Finally, we show how deregulation increased debt and leverage at the middle and the top of the debt and leverage distributions, and had a relatively large effect on non-white headed households at the top 20% of the debt distribution.

Suggested Citation

  • Sarah Brown & Daniel Gray & Alberto Montagnoli, 2018. "Credit Supply Shocks and Household Leverage: Evidence from the US Banking Deregulation," Working Papers 2018009, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2018009
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2018_009
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    More about this item

    Keywords

    Access to Credit; Banking Competition; Household Finances; Leverage.;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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