THE EFFECT OF THE BANK REGULATORY ENVIRONMENT ON STATE ECONOMIC-ACTIVITY

This paper examines the relationship between bank regulation and econo mic activity. We look at the effect of branching and interstate bankin g regulations on three measures of state economic activity for the per iod from 1970 to 1988. Increases in bank costs and reductions in compe tition due to regulation can be expected to lead to reduced levels of financial intermediation, causing a decline in economic activity. Cont rolling for state and time-period effects, our results show an adverse effect of restrictive bank regulation on economic activity.