U.S. Banking Deregulation, Small Businesses, and Interstate Insurance of Personal Income

Abstract

We estimate the effects of deregulation of U.S. banking restrictions on interstate personal income insurance for the period 1970 to 2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific output shocks. We find that insurance improved after banking deregulation, with a larger effect in states where small businesses are more important and on proprietors' income than on other components of personal income. Our explanation centers on the role of banks as a prime source of small business finance and on the close intertwining of the personal and business finances of small business owners. Copyright 2007 by The American Finance Association.

Finance and employment: Evidence from U.S. banking reforms

“…Researchers have examined the impact of bank deregulation on states' income growth (Jayaratne and Strahan (1996)), output volatility (Morgan, Rime, and Strahan (2004) ;Demyanyk, Ostergaard, and Srensen (2007)); Acharya, Imbs, and Sturgess (2011)), wages in the finance industry (Black and Strahan (2001);Boustanifar (2014)), income inequality (Beck, Levine, and Levkov (2010)), small firm finance (Rice and Strahan (2010)) and economic integration through trade (Michalski and Ors (2012)). However, this literature has not looked at how the reforms affected labor market outcomes in the real sectors of the economy.…”

Credit and the Labor Share: Evidence from U.S. States

“…4 Some examples on the international side are Cacciatore et al (2015), who study the effects of banking deregulation on domestic business entry, exchange rate appreciation, and international borrowing, and relevance to our study, Demyanyk et al (2007) provide evidence showing that personal income insurance improved after banking deregulation, with a larger effect on proprietors' income than on other components of personal income. Concentrating on income inequality, Beck et al (2010) find that banking deregulation increased the relative wage rates and working hours of unskilled workers, and thereby tightened the distribution of income.…”

“…We point out that, as in Black and Strahan (2002), Demyanyk et al (2007), and Kerr and Nanda (2009), we allow for both interstate banking and intrastate branching deregulation to affect the labor share, which is not the case for all studies. We believe that either policy could plausibly affect the labor share through the mechanism provided in our model, since deregulation of both within and across state bank restrictions has been shown to improve bank efficiency and to limit market power, leading to lower lending rates (Black and Strahan (2002)).…”

The Rise and Fall of Consumption in the 2000s

“…7 Luengo-Prado and Sørensen (2008) show that the consumption model with housing can fit U.S. state-level MPCs well if significant risk sharing, as in Attanasio and Pavoni (2011), is added to the model. The standard one-good risk-sharing model (see Mace, 1991;Cochrane, 1991) predicts that all consumers have perfectly coordinated consumption-a model which was rejected by Cochrane (1991), Attanasio and Davis (1996), and Hryshko, Luengo-Prado, and Sørensen (2010) using micro data, and Asdrubali, Sørensen, and Yosha (1996) and Demyanyk, Ostergaard, and Sørensen (2007) using regional data.…”