Interstate banking deregulation and bank loan commitments

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

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.

Original languageEnglish
Article number6
JournalB.E. Journal of Macroeconomics
Volume12
Issue number2
DOIs
Publication statusPublished - 2012 Jan 1

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Bank loans
Interstate banking
Loan commitments
Banking deregulation
Agency costs
Liquidity management
Staggering
Natural experiment
Balance sheet
Empirical analysis
Deregulation
Commercial banks
Internal capital markets

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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Interstate banking deregulation and bank loan commitments. / Park, Ki Young.

In: B.E. Journal of Macroeconomics, Vol. 12, No. 2, 6, 01.01.2012.

Research output: Contribution to journalArticle

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