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The Effect of Banking Regulation on Cross-Border Lending

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  • Christa Hainz

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  • Jarko Fidrmuc

Abstract

Banking regulations often differ between countries: Some regulators require banks to document their evaluation of firms’ creditworthiness, which determines the banks’ choice of lending technology. In a theoretical model, we study how differences in regulation influence competition between domestic and foreign banks and analyze the effect of regulatory harmonization on cross-border lending. We predict that lending rates are lower and access to credit is easier for firms in a border region if the national regulations differ. Using unique bank- and firm-level data from Germany, we show that firms in a border region have better access to credit if regulation differs.

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Bibliographic Info

Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 140.

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Date of creation: 2012
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Handle: RePEc:ces:ifowps:_140

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Related research

Keywords: Bank regulations; cross-border lending; SMEs; difference-in-difference estimation;

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References

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Cited by:
  1. Leonardo Gambacorta & Adrian Van Rixtel, 2013. "Structural bank regulation initiatives: approaches and implications," BIS Working Papers 412, Bank for International Settlements.

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