Banking Regulation, Institutional Quality, and Financial Crises

47 Pages Posted: 11 Feb 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: January 30, 2017

Abstract

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

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

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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