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Bank Deregulation and Income Distribution

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Presentation on theme: "Bank Deregulation and Income Distribution"— Presentation transcript:

1 Bank Deregulation and Income Distribution
Discussion by: Philip E. Strahan Boston College March 2007

2 What does banking deregulation do?
Effects on banking sector Lowers entry barriers & more competition Weeding out of inefficient banks Increases M&A rate Reduces presence of small banks More integrated markets regionally & nationally Effects on the real economy Faster overall growth More entry and more small firms (more competition in non-financial sector) Less idiosyncratic economic volatility / better risk sharing

3 Why would deregulation affect income distribution?
More competition  less labor-market discrimination Black & Strahan (2001) report evidence in banking Implication: Minorities, women may benefit most from banking deregulation, so lower income inequality More creation of new firms Not clear how growth or business fluctuations affects income distribution In general, paper needs more discussion of theory or channels through which reform might reduce inequality

4 This paper: US deregulation lowered income inequality
Wages increase more for women than men after reform Consistent with competition / discrimination channel Gini coefficient falls after reform More for women. Why? More for proprietor’s income

5 Extension 1: More details on banking competition
Local market concentration Exploit variation at MSA level Interact with deregulation indicators Other exogenous changes in concentration from large-bank mergers Germaise & Moskowitz (2006) Branching v. interstate banking reform Unit banking v. limited branching

6 Extension 2: Look at other changes in banking
Small bank market presence falls sharply after deregulation Efficiency v. market power What matters? Mergers & Acquisitions

7 Extension 3: Explore Dynamics
How long for income distribution to change? Does income distribution change before deregulation? After? Lags Important to understand causality

8 Extension 4: What happens along different points in the wage distribution?
25th, median, 75th percentiles? Who loses (besides small bankers)? Age, sex, race, education Do young benefit relative to old? Do minorities benefit relative to non-minorities? College v. non-college Industry effects Bigger effects where finance matters more (a la Rajan & Zingales?)

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