The Cost of Banking Regulation

Luigi Guiso (), Paola Sapienza () and Luigi Zingales

No ECO2007/43, Economics Working Papers from European University Institute

Abstract: We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find that where entry was more restricted the cost of credit was higher and - contrary to expectations - access to credit lower. The only benefit of these restrictions was a lower proportion of bad loans. Liberalization brings a reduction in rate spreads and an increased access to credit at the cost of an increase in bad loans. In provinces where restrictions to bank competition were most severe, the proportion of bad loans after deregulation raises above the level present in more competitive markets, suggesting that the pre-existing conditions severely impact the effect of liberalization

Keywords: banking regulation; financial development; finance (search for similar items in EconPapers)
JEL-codes: G0 G2 K2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com, nep-law and nep-reg
Date: 2007
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Related works:
Working Paper: The Cost of Banking Regulation (2006)
Working Paper: The Cost of Banking Regulation (2006)
Journal Article: The cost of banking regulation (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2007/43

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