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Related lending and banking development

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Author Info

  • Cull, Robert
  • Haber, Stephen
  • Imai, Masami

Abstract

Does related lending have positive or negative effects on the development of banking systems? This paper analyzes a unique cross-country data set covering 74 countries from 1990 to 2007, and finds that related lending, on average, does not have any effect on the growth of credit. The authors do find, however, that there are conditional relationships: related lending tends to retard the growth of banking systems when rule of law is weak, while it tends to promote the growth of banking systems when rule of law is strong. They also find that related lending appears to be associated with looting when banks are owned by non-financial firms, but that it does not when non-financial firms are owned by banks. The results indicate that whether related lending is positive or pernicious depends critically on the institutional context in which it takes place; there is no single"best policy"regarding related lending. These findings are robust to alternative specifications, including instrumental variable regressions.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5570.

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Date of creation: 01 Feb 2011
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Handle: RePEc:wbk:wbrwps:5570

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Related research

Keywords: Banks&Banking Reform; Debt Markets; Bankruptcy and Resolution of Financial Distress; Labor Policies; Economic Theory&Research;

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  1. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
  2. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
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Cited by:
  1. repec:dgr:uvatin:2013034 is not listed on IDEAS
  2. Laetitia Lepetit & Amine Tarazi & Nadia Zedek, 2012. "Ultimate Ownership Structure and Bank Regulatory Capital Adjustment: Evidence from European Commercial Banks," Working Papers hal-00918579, HAL.

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