This paper contributes to the literature that analyzes the mechanisms linking financial shocks and real activity. In particular, we investigate the growth impact of banking crises on industries with different levels of dependence on external finance. If banks are the key institutions allowing credit constraints to be relaxed, then a sudden loss of these intermediaries in a system in which such intermediaries are important should have a disproportionately contractionary impact on the sectors that flourished due to their reliance on banks. Using data from 38 developed and developing countries that experienced financial crises during the last quarter century, we find that those sectors that are highly dependent on external finance tend to experience a substantially greater contraction of value added during a banking crisis in countries with deeper financial systems than in countries with shallower financial systems. Our results do not suggest, however, that on net the externally dependent firms fare worse in deep financial systems.

This paper investigates private-interest, public-interest, and political-institutional theories of regulatory change to analyze state-level deregulation of bank branching restrictions. Using a hazard model, we find that interest group factors related to the relative strength of potential winners (large banks and small, bank-dependent firms) and losers (small banks and the rival insurance firms) can explain the timing of branching deregulation across states during the last quarter century. The same factors also explain congressional voting on interstate branching deregulation. While we find some support for each theory, the private interest approach provides the most compelling overall explanation of our results.