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Credit provision and banking stability after the Great Financial Crisis: The role of bank regulation and the quality of governance

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  • Fratzscher, Marcel
  • König, Philipp Johann
  • Lambert, Claudia

Abstract

In response to the Great Financial Crisis (GFC), bank regulatory regimes were tightened world-wide to strengthen banking stability and the resilience of the banking sectors. Yet, it is often claimed that regulatory tightening may lead banks to cut back on lending and comes at the cost of a lower loan supply. The present paper uses a country panel for 50 advanced and emerging market economies to analyze how the post-crisis tightening in supervision and regulation affected aggregate bank stability and aggregate credit growth. We find that higher capital buffers improved aggregate bank stability after the GFC, whereas a strengthening of supervisory independence helped to reduce the decline in domestic credit and improved the stability of banks. Both effects have been stronger for countries with relatively poor institutions. Thus, our results suggest that bank supervision/regulation and institutions tend to be substitutes rather than complements.

Suggested Citation

  • Fratzscher, Marcel & König, Philipp Johann & Lambert, Claudia, 2016. "Credit provision and banking stability after the Great Financial Crisis: The role of bank regulation and the quality of governance," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 113-135.
    • Handle: RePEc:eee:jimfin:v:66:y:2016:i:c:p:113-135
    DOI: 10.1016/j.jimonfin.2016.02.015
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    More about this item

    Keywords

    Banking risk; Credit growth; Bank regulation and supervision; Institutional quality;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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