Lending Quality and Contracts Enforcement Reforms

44 Pages Posted: 17 Feb 2021

See all articles by Vincenzo D'Apice

Vincenzo D'Apice

Center for Relationship Banking and Economics

Franco Fiordelisi

University of Rome III - Department of Business Studies; Middlesex University - Business School

Giovanni Walter Puopolo

University of Naples Federico II - Department of Economic and Statistical Sciences

Date Written: February 15, 2021

Abstract

We investigate the causal relationship between the efficiency of country’s judicial system and the quality of bank lending, using the contracts enforcement reforms that have been implemented in four European countries as a quasi-natural experiment. We find that strengthening of contract enforcement determines large, significant, and persistent reductions of banks’ non-performing-loans (NPLs). Our results have important policy implications: they point at judicial efficiency as a key determinant of the stability of the banking sector and its resilience to negative shocks such as the recent COVID-19 pandemic.

Keywords: Judicial Systems, Non-Performing Loans, Banking Stability

JEL Classification: G21, G28

Suggested Citation

D'Apice, Vincenzo and Fiordelisi, Franco and Puopolo, Giovanni Walter, Lending Quality and Contracts Enforcement Reforms (February 15, 2021). Available at SSRN: https://ssrn.com/abstract=3786050 or http://dx.doi.org/10.2139/ssrn.3786050

Vincenzo D'Apice (Contact Author)

Center for Relationship Banking and Economics ( email )

Franco Fiordelisi

University of Rome III - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, RM 00145
Italy

HOME PAGE: http://host.uniroma3.it/docenti/fiordelisi/?home

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Giovanni Walter Puopolo

University of Naples Federico II - Department of Economic and Statistical Sciences ( email )

Via Cintia 26
Napoli
Italy

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