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Working Paper

Bank Performance and Regional Economic Growth: Evidence of a Regional Credit Channel

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This paper examines the relationship between bank performance and economic growth at the state level. We develop a regional credit view to explain how, due to information costs, regional banking conditions can influence local economic activity by affecting a region’s ability to fund local investments. The model suggests that local banking-sector problems may constrain economic activity in financially distressed regions, whereas no such link need be evident in financially sound regions. We test the empirical relevance of this credit view for the 1983-1990 period using state-level data and find evidence of a regional financial channel to output. Specifically, local banking-sector conditions explain more of real personal income growth in states whose share of nonperforming loans is above the national share.
02.01.1992ISSN 2573-7953 WP 92-04DOI 10.26509/frbc-wp-199204

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Samolyk, Katherine. 1992. “Bank Performance and Regional Economic Growth: Evidence of a Regional Credit Channel.” Federal Reserve Bank of Cleveland, Working Paper No. 92-04. https://doi.org/10.26509/frbc-wp-199204