47 Pages Posted: 11 Feb 2017
Date Written: January 30, 2017
This paper examines how financial regulation and institutional quality affect the likelihood of a systemic banking crisis. Using an unbalanced panel of 132 countries over the period from1999 to 2011, we find that the inverted U-shaped impact of regulation on the probability of financial crisis is sensitive to the institutional quality and creates a liberalization trap for “happy mediums”: only countries endowed with good institutions can undertake a liberalization process. This effect is larger for European Union (and Eurozone) members than other countries. The policy implication is that heterogeneity in institutional quality generates different preferences making an international agreement on banking regulation hard to achieve, especially in Europe. Our results are consistent with several robustness econometric exercises.
Keywords: crisis, banks, institutions, liberalization, regulation
JEL Classification: G01, G21, G28
Suggested Citation: Suggested Citation
Marchionne, Francesco and Pisicoli, Beniamino, Banking Regulation, Institutional Quality, and Financial Crises (January 30, 2017). Kelley School of Business Research Paper No. 17-15. Available at SSRN: https://ssrn.com/abstract=2914642 or http://dx.doi.org/10.2139/ssrn.2914642