Banking Deregulation, Local Credit Supply, and Small-Business Growth

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The deregulation of bank branching in the United States reduced the sensitivity of small-business growth to local credit supply. In urban markets, within-state deregulation resulted in a 50 percent decrease in the effect of local deposit growth on employment and payroll growth. This effect is concentrated in establishments with 20–99 employees. These results hold for states that deregulated branching in response to litigation unrelated to economic conditions. These findings suggest that the large multimarket banks enabled by deregulation play an important role in insuring firms against local shocks to credit supply.

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