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Bank Regulation and Monetary Policy Transmission: Evidence from the U.S. States Liberalization

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  • Lakdawala, Aeimit

    (Michigan State University, Department of Economics)

  • Minetti, Raoul

    (Michigan State University, Department of Economics)

  • Schaffer, Matthew

    (Department of Economics, University of North Carolina)

Abstract

This paper studies the impact of geographic banking restrictions on monetary policy transmission. Exploiting the staggered deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate deregulation significantly increased the responsiveness of bank lending to monetary shocks. This effect occurred primarily for small and illiquid banks, pointing to a strengthening of the bank lending channel. Changes in bank market structure and loan portfolio composition are unlikely to explain the effect of deregulation. This instead reflects a reduced propensity of small banks affiliated with complex bank holding companies to insulate borrowers from monetary contractions.

Suggested Citation

  • Lakdawala, Aeimit & Minetti, Raoul & Schaffer, Matthew, 2018. "Bank Regulation and Monetary Policy Transmission: Evidence from the U.S. States Liberalization," Working Papers 2018-6, Michigan State University, Department of Economics.
    • Handle: RePEc:ris:msuecw:2018_006
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    More about this item

    Keywords

    Bank regulation; Bank lending channel; Monetary policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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