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Banking regulation - burden or blessing?

Author

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  • Kim Abildgren

Abstract

Purpose - The purpose of this paper is to explore the impact of regulation on previously unregulated banks’ balance-sheet growth using the 1880 Danish Savings Bank Act as a natural experiment. With the Act, Danish savings banks became, for the first time, subject to regulation and supervision whereas commercial banks continued as unregulated institutions. Design/methodology/approach - The main elements of the Act focussed on supervision and provisions to improve information transparency. The paper estimates the impact of the Act on the balance-sheet growth of Danish savings banks using bank-level panel data and a difference-in-differences approach. Findings - The paper finds no indications that the Act had a negative effect on the balance-sheet growth of savings banks compared to commercial banks in the short run. Furthermore, there are indications of a positive effect after a couple of years. This suggests that regulation is not always a burden for the regulated institutions and might even have a positive impact on their business activity. Originality/value - This paper is the first study using the introduction of banking supervision and regulation in the 1800s as a natural experiment to evaluate the causal effect of regulation on the balance-sheet growth of previously unregulated financial intermediaries.

Suggested Citation

  • Kim Abildgren, 2019. "Banking regulation - burden or blessing?," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 11(4), pages 548-562, May.
    • Handle: RePEc:eme:jfeppp:jfep-10-2018-0155
    DOI: 10.1108/JFEP-10-2018-0155
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    Citations

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    Cited by:

    1. Thomas Barnebeck Andersen & Peter Sandholt Jensen, 2022. "Too Big to Fail and Moral Hazard: Evidence from an Epoch of Unregulated Commercial Banking," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(4), pages 808-830, December.
    2. Azmat Gani & Tareq Rasul, 2020. "The Institutional Quality Effect on Credits Provided by the Banks," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 249-258, August.

    More about this item

    Keywords

    Banks; Regulatory change;

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