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The Effect of Banking Regulation on Cross-Border Lending

  • Christa Hainz

    ()

  • Jarko Fidrmuc

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-Ifo_Working_Papers/wp-ifo-2012/IfoWorkingPaper-140.pdf
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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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