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Bank Integration and State Business Cycles

Author

Listed:
  • Morgan, Donald

    () (Federal Reserve Bank of New York)

  • Rime, Bertrand

    (Swiss National Bank)

  • Strahan, Philip E.

    (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.

Suggested Citation

  • Morgan, Donald & Rime, Bertrand & Strahan, Philip E., 2004. "Bank Integration and State Business Cycles," SIFR Research Report Series 30, Institute for Financial Research.
  • Handle: RePEc:hhs:sifrwp:0030
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bank integration; Business volatility; Geographic diversification;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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