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Regulatory fragmentation and bank loan pricing

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  • Zhao, Baoying

Abstract

This study investigates the impact of regulatory fragmentation, characterized by overlapping rules from multiple regulatory agencies, on the cost of bank loans. Using a sample of 10,139 loan facilities in the US from 1995 to 2019, I find a significant negative relationship between regulatory fragmentation and loan spreads. Additionally, the impact of regulatory fragmentation is more pronounced for firms with higher information risk, weaker external monitoring, and a stronger institutional environment. Delving into non-price loan terms, I document that regulatory fragmentation results in less stringent contractual requirements, including reduced collateral demands, lower loan fees, and fewer financial covenants. Overall, this study integrates debt contracting research with the regulation literature by showing that lenders take borrowers’ regulatory environment into account in the design of loan contracts.

Suggested Citation

  • Zhao, Baoying, 2026. "Regulatory fragmentation and bank loan pricing," Finance Research Letters, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finlet:v:97:y:2026:i:c:s1544612326003491
    DOI: 10.1016/j.frl.2026.109819
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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