Working Paper: CEPR ID: DP5864
Authors: 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 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 Codes: E0; G10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| restrictive bank competition (G21) | higher cost of credit (G21) |
| restrictive bank competition (G21) | lower access to credit (G21) |
| deregulation (L51) | increased access to credit (G21) |
| deregulation (L51) | reduced borrowing costs (G21) |
| deregulation (L51) | increased proportion of bad loans (G21) |
| historical banking structure (N20) | causal impact of competition on credit supply (E51) |
| historical banking structure (N20) | causal impact of competition on economic growth (F69) |