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The cost of banking regulation

Author

Listed:
  • Luigi Guiso
  • Paola Sapienza
  • Luigi Zingales

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 rate spreads and an increased access to credit at the 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 liberalization
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Suggested Citation

  • Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The cost of banking regulation," Proceedings 937, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:937
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    More about this item

    Keywords

    bank examinations; Bank supervision;

    JEL classification:

    • G0 - Financial Economics - - General
    • G2 - Financial Economics - - Financial Institutions and Services
    • K2 - Law and Economics - - Regulation and Business Law

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