Date: 2007
Type: Working Paper
The Cost of Banking Regulation
Working Paper, EUI ECO, 2007/43
GUISO, Luigi, SAPIENZA, Paola, ZINGALES, Luigi, The Cost of Banking Regulation, EUI ECO, 2007/43 - https://hdl.handle.net/1814/7497
Retrieved from Cadmus, EUI Research Repository
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 liberalizations.
Cadmus permanent link: https://hdl.handle.net/1814/7497
ISSN: 1725-6704
Series/Number: EUI ECO; 2007/43
Publisher: European University Institute