We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking...

The condition of banking systems in developing countries strongly influences the design and effectiveness of economic adjustment policies. Bank portfolio weakness can limit the flexibility of interest rate policy, the scope of financial reforms, and the conduct of monetary and fiscal policy....