State‐level economic policy uncertainty and Bank loan pricing

Justin S. Cox

Accounting and Finance, 2025, vol. 65, issue 2, 1614-1634

Abstract: We use the state‐level economic policy uncertainty (EPU) index of Baker et al. (Journal of Monetary Economics, 2022, 132, 81) and find that state‐level EPU increases interest income but lowers total loan growth, resulting in higher loan pricing. We show increases in state‐level EPU have a stronger impact on small‐ and medium‐sized commercial banks than their large‐bank counterparts. Finally, we control for nationwide measures of EPU, finding the effects of state‐level EPU are as economically significant as the national‐level policy uncertainty measure. However, controlling for the interaction between economic uncertainty and firm size, we find that national‐level EPU is more economically significant than state‐level EPU.

Date: 2025
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