Domestic Financial Regulation and External Borrowing

28 Pages Posted: 31 May 2011

See all articles by Sergi Lanau

Sergi Lanau

International Monetary Fund (IMF)

Date Written: May 31, 2011

Abstract

This paper studies the relationship between domestic financial regulation and the incentive of non-banks to borrow from banks abroad using BIS banking data in a gravity framework. Conditional on a large set of macroeconomic controls, we find that under tighter domestic financial regulation non-banks borrow more abroad. Non-banks in a country on the upper quartile of a financial deregulation index borrow 21%-28% more than non-banks in a country with minimum regulation. The finding also holds for more disaggregated regulation measures. Interest rate controls and entry barriers to the banking sector are the most relevant types of regulation. The results in this paper indicate that international borrowing and lending is a prominent element to be taken into account in designing financial stability tools.

Keywords: Bank regulation, cross-border banking

JEL Classification: G28, G15

Suggested Citation

Lanau, Sergi, Domestic Financial Regulation and External Borrowing (May 31, 2011). Bank of England Working Paper No. 429, Available at SSRN: https://ssrn.com/abstract=1856118 or http://dx.doi.org/10.2139/ssrn.1856118

Sergi Lanau (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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