Regulation, financial crises, and liberalization traps

Francesco Marchionne (), Beniamino Pisicoli and Michele Fratianni

Journal of Financial Stability, 2022, vol. 63, issue C

Abstract: This paper examines how financial regulation and institutional quality affect the probability of a banking crisis using a panel of 138 countries over the period 1996–2017. Our key inference is that the probability of a financial crisis fits an inverted U-shaped curve: it rises as regulation stringency moves from low to medium levels and falls from medium to high levels. Countries located in the intermediate level of regulatory stringency face more financial instability than either loosely or severely regulated countries, which are caught in a “liberalization trap” and a “regulation trap,” respectively. Institutional quality interacts significantly with the regulatory environment, implying a trade-off with regulatory stringency.

Keywords: Crisis; Banks; Institutions; Liberalization; Regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Regulation, Financial Crises, and Liberalization Traps (2019)
Working Paper: Regulation, financial crises, and liberalization traps (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:63:y:2022:i:c:s1572308922000821

DOI: 10.1016/j.jfs.2022.101060

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