On regional integration in bank commercial lending

Abstract

This paper tests the hypothesis that average interest rates for ten categories of commercial loans (short-term and long-term loans in five size classes) in the regions of the United States behave as if they were generated in an integrated national market. The tests, derived from two models of commercial lending in an integrated market , indicate that all regions are highly integrated in short-term lending in all size classes. In long-term lending, five of the six regions appear to be highly integrated in four of the five size classes. The exceptional region is the Southeast, which seems not only to be poorly integrated with the other regions but also to be far less homogeneous. The exceptional loan-size class is 0 to $10,000.