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Interstate Banking Deregulation and Bank Loan Commitments

Listed author(s):
  • Park Ki. Young

    ()

    (Yonsei University)

This paper uses the staggering timing of branching and interstate banking deregulation as a natural experiment to explore the effect of agency cost on the use of bank loan commitments. A simple inventory-based model shows that lower agency cost allows a bank to issue more loan commitments because lower agency cost alleviates the difficulty of liquidity management associated with loan commitments. Our empirical analysis confirms the model’s testable implication: Commercial banks issue more loan commitments after interstate banking deregulation, which lowers agency costs through expanded internal capital markets across states. However, the effect of branching deregulation is weak or non-existent. Considering the role of bank loan commitments, this result not only shows how banking deregulation affects bank balance sheets but also suggests one route through which interstate banking affects the real economy.

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File URL: https://www.degruyter.com/view/j/bejm.2012.12.issue-2/1935-1690.2404/1935-1690.2404.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 12 (2012)
Issue (Month): 2 (March)
Pages: 1-29

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Handle: RePEc:bpj:bejmac:v:12:y:2012:i:2:n:6
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  1. Stock, James H. & Watson, Mark, 2008. "Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression," Scholarly Articles 28461843, Harvard University Department of Economics.
  2. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1437-1467.
  3. James H. Stock & Mark W. Watson, 2008. "Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression," Econometrica, Econometric Society, vol. 76(1), pages 155-174, 01.
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  7. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  8. Ashcraft, Adam B., 2006. "New Evidence on the Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 751-775, April.
  9. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
  10. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
  11. Shockley, Richard L & Thakor, Anjan V, 1997. "Bank Loan Commitment Contracts: Data, Theory, and Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 517-534, November.
  12. Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-161, May.
  13. Murillo Campello, 2002. "Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy," Journal of Finance, American Finance Association, vol. 57(6), pages 2773-2805, December.
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