Effects of Bank Regulation and Lender Location on Loan Spreads

Li Hao, Debarshi Nandy and Gordon Roberts

Journal of Financial and Quantitative Analysis, 2012, vol. 47, issue 6, 1247-1278

Abstract: We investigate how differences in regulation regarding banking-commerce integration and banking sector concentration influence loan spreads across 29 countries. Theoretical research posits conflicting effects based on agency costs, information asymmetry costs, and market power. Increased integration is associated with lower loan spreads in countries with low concentration, but moving to high levels of integration increases spreads in countries with high concentration. Starting from lower levels, an increase in integration is associated with an increase in informational efficiency that disappears at higher levels of integration. We also show that market concentration affects loan spreads differently under high-, medium-, and low-integration regimes.

Date: 2012
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