The Cost of Banking Regulation

Luigi Guiso, Luigi Zingales and Paola Sapienza

No 5864, CEPR Discussion Papers from Centre for Economic Policy Research

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 rates spreads and an increased access to credit at a 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 liberalizations.

Keywords: Macroeconomics; Monetary economics (search for similar items in EconPapers)
JEL-codes: E0 G10 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-ban, nep-com, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Related works:
Working Paper: The Cost of Banking Regulation (2007)
Working Paper: The Cost of Banking Regulation (2006)
Working Paper: The cost of banking regulation (2004)
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