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Capital Market Regimes and Bank Structure in Europe

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Abstract

We hypothesize that features of European capital markets used to distinguish market reliance and investor protection have predictably influenced emerging national differences in bank capitalization, growth, and choice of income-producing activities. We characterize countries' capital regimes as more or less "equity-friendly" or "debt-friendly" based upon their reliance on equity and credit markets and the extent to which their legal frameworks protect shareholders and creditors. Using bank-level data from 13 European countries, 1998 to 2004, we find evidence of positive associations between equity-friendly market features and, respectively, bank capitalization, bank asset growth and the relative emphasis on bank lending to its customers. Support is also provided for hypotheses that credit-friendly capital regimes convey advantages reflected in higher rates of growth in assets and greater emphasis on lending to customers. Our results suggests that integration of European banking markets is mitigated by other, relatively static, features of the equity and debt markets on which banks rely.

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Bibliographic Info

Paper provided by Utah State University, Department of Economics and Finance in its series Working Papers with number 200807.

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Length: 42 pages
Date of creation: 14 Jan 2009
Date of revision:
Handle: RePEc:uth:wpaper:200807

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Keywords: international banking; market integration; shareholder protection;

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Cited by:
  1. Mejra Festić, 2011. "The role of the foreign banks in the 5 EU member states," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 13(1), pages 189-206, June.

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