The Cost of Banking Regulation

53 Pages Posted: 20 Dec 2006

See all articles by Luigi Guiso

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF); Einaudi Institute for Economics and Finance

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2006

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

JEL Classification: E0, G10

Suggested Citation

Guiso, Luigi and Guiso, Luigi and Sapienza, Paola and Zingales, Luigi, The Cost of Banking Regulation (October 2006). CEPR Discussion Paper No. 5864, Available at SSRN: https://ssrn.com/abstract=952791

Luigi Guiso (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

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HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/luigi-guiso/

Einaudi Institute for Economics and Finance ( email )

Via Sallustiana 62
rome, 00187
Italy

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States
847-491-7436 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Luigi Zingales

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

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United States

Centre for Economic Policy Research (CEPR)

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United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels
Belgium

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