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The Cost of Banking Regulation

Luigi Guiso, Paola Sapienza and Luigi Zingales

No 12501, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E0 G0 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-ban, nep-com, nep-fmk, nep-knm, nep-mac and nep-reg
Note: ME IO
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Citations: View citations in EconPapers (62)

Published as Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The cost of banking regulation," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 125-164.

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