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Bank Integration and State Business Cycles

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Listed:
  • Donald P. Morgan
  • Bertrand Rime
  • Philip E. Strahan

Abstract

We investigate how integration of bank ownership across states has affected economic volatihty 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 increase, fluctuations in those two states tend to converge. We conclude that interstate banking has made state business cycles smaller, but more alike.

Suggested Citation

  • Donald P. Morgan & Bertrand Rime & Philip E. Strahan, 2004. "Bank Integration and State Business Cycles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1555-1584.
    • Handle: RePEc:oup:qjecon:v:119:y:2004:i:4:p:1555-1584.
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    File URL: http://hdl.handle.net/10.1162/0033553042476161
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