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Banking Regulation, Institutional Quality, and Financial Crises

41 Pages Posted: 11 Feb 2017 Last revised: 11 Apr 2017

Francesco Marchionne

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Università Politecnica delle Marche - Department of Economics

Beniamino Pisicoli

Università degli Studi di Bari Aldo Moro - Dpt. of Economics

Date Written: April 9, 2017

Abstract

This paper examines how financial regulation and institutional quality affect the probability of a banking crisis using a panel of 132 countries over the period 1999-2011. We find that the probability of a financial crisis increases moving from low to medium levels of regulation and decreases from medium to high levels of regulation. This relationship 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. As heterogeneity in institutional quality generates also different preferences, international agreements on banking regulation are 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

Marchionne, Francesco and Pisicoli, Beniamino, Banking Regulation, Institutional Quality, and Financial Crises (April 9, 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

Francesco Marchionne (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

1309 East Tenth Street
Bloomington, IN 47405-1701
United States
01 812 855-3756 (Phone)

HOME PAGE: http://kelley.iu.edu/BEPP/Faculty/page14113.cfm?ID=47081

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, 60121
Italy
+39 071 2207120 (Phone)

Beniamino Pisicoli

Università degli Studi di Bari Aldo Moro - Dpt. of Economics ( email )

largo Abbazia di Santa Scolastica
Bari, 70121
Italy

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