Banking regulation - burden or blessing?

Kim Abildgren

Journal of Financial Economic Policy, 2019, vol. 11, issue 4, 548-562

Abstract: Purpose - The purpose of this paper is to explore the impact of regulation on previously unregulated banks’ balance-sheet growth using the 1880 Danish Savings Bank Act as a natural experiment. With the Act, Danish savings banks became, for the first time, subject to regulation and supervision whereas commercial banks continued as unregulated institutions. Design/methodology/approach - The main elements of the Act focussed on supervision and provisions to improve information transparency. The paper estimates the impact of the Act on the balance-sheet growth of Danish savings banks using bank-level panel data and a difference-in-differences approach. Findings - The paper finds no indications that the Act had a negative effect on the balance-sheet growth of savings banks compared to commercial banks in the short run. Furthermore, there are indications of a positive effect after a couple of years. This suggests that regulation is not always a burden for the regulated institutions and might even have a positive impact on their business activity. Originality/value - This paper is the first study using the introduction of banking supervision and regulation in the 1800s as a natural experiment to evaluate the causal effect of regulation on the balance-sheet growth of previously unregulated financial intermediaries.

Keywords: Banks; Regulatory change (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-10-2018-0155

DOI: 10.1108/JFEP-10-2018-0155

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