State-level economic policy uncertainty and Bank loan pricing

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.