When Philip Strahan began his first job out of graduate school, as a research economist at the Federal Reserve Bank of New York in 1993, his work immersed him in two worlds—the world of banking policy, where deregulation was changing the landscape, and the world of emerging economics research. It didn't take him long to draw a causal link between the two: If you improve the financial system with a policy change, you can improve the real economy.
This early conviction, controversial at the time but widely accepted today, laid the groundwork for the line of research he would pursue over the next two decades: considering how regulation and deregulation affect the whole economy.
Strahan—now a professor and the John L. Collins, S.J. Chair in the Carroll School of Management's Finance Department, as well as a research associate at the National Bureau of Economic Research and a fellow at the Wharton Financial Institutions Center—acknowledges that deregulation has become a fraught term. “Everyone blames the financial crisis on deregulation, and there’s some truth to that, but I think it’s overstated,” he says.
His research has led him to believe that some effects of deregulation—including diversification, financial integration, and increased inter-bank competition—“had many benefits and were not implicated in the financial crisis.”
In the Journal of Finance, Strahan and two co-authors demonstrate how multi-branch banks—one result of deregulation—have helped spread windfalls from energy boom areas to counties that would not otherwise have benefitted. The investment into counties where energy booms were taking place “created inflows in deposits into banks in those areas that were then spread to other markets throughout the branch network,” Strahan explains.
Strahan is currently studying how financial integration helps banks move assets quickly to reinvigorate communities when national disasters strike. In the aftermath of a hurricane or earthquake, he says, “there’s a lot of demand to rebuild, and it’s important for there to be capital available to help. Multi-market banks are instrumental in that process.”