Creditor Rights, Systemic Risk and Bank Regulations: Evidence from Cross-Country Study

41 Pages Posted: 4 Dec 2015 Last revised: 12 Oct 2016

Christian Haddad

Univ. Lille, SKEMA Business School, EA4112 - LSMRC

Frédéric Lobez

Université de Lille Nord de France – European Center for Corporate Control Studies

Date Written: December 2, 2015

Abstract

In this paper, we investigate the extent in which creditor rights protection in bankruptcy induces banks to take more risk, leading to a higher level of systemic risk in the financial system. We apply ∆CoVaR, introduced by Adrian and Brunnermeier (2011), as the measure of systemic risk. Our sample uses 744 listed commercial banks and covers 34 countries. Our work shows that more legal protection leads to higher level of systemic risk. This result supports the “dark side” of the strong creditor rights in bankruptcy. We further find that developed countries contribute to the increase of systemic risk while we find neutral impact for developing countries. Moreover, our results hold when we apply different measures for bank risk taking and creditor rights.

Keywords: Creditor rights, bankruptcy code, bank systemic risk, bank regulation

JEL Classification: G01, G21, G28

Suggested Citation

Haddad, Christian and Lobez, Frédéric, Creditor Rights, Systemic Risk and Bank Regulations: Evidence from Cross-Country Study (December 2, 2015). Available at SSRN: https://ssrn.com/abstract=2698645

Christian Haddad (Contact Author)

Univ. Lille, SKEMA Business School, EA4112 - LSMRC ( email )

Avenue Willy Brandt, Euralille
Lille, 59777
France

Frédéric Lobez

Université de Lille Nord de France – European Center for Corporate Control Studies ( email )

Lille Cedex, 59020
France

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