The bank lending channel across time and space

Abstract

We build a model of banking industry dynamics with imperfect competition to address the following question: How does monetary policy affect lending outcomes across time, given the spatial expansion of the banking industry? Geographic expansion of the banking industry followed from the elimination of cross-state branching restrictions begun in the McFadden Act of 1927, which permitted national banks to branch only to the same extent as state banks, thus giving the states ultimate authority. While some states permitted such cross-state branching prior to 1994, the Riegle-Neal Act removed several obstacles to banks opening branches in other states and provided a uniform set of rules regarding banking in each state.