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Judicial Efficiency and Lending Quality




We investigate the causal relationship between the efficiency of country’s judicial system and the quality of bank lending, using the enforcing contracts reforms that have been implemented in four European countries as a quasi-natural experiment. We find that improvements of enforcing contracts determine large, significant, and persistent reductions of banks’ non-performing-loans (NPLs). These findings are robust to several difference-in-difference tests and reverse causality concerns. Our results have important policy implications especially at the light of the recent Covid-19 pandemic since they may help the banking system mitigate the virus’ negative financial effects.

Suggested Citation

  • Vincenzo D'Apice & Franco Fiordelisi & Giovanni W. Puopolo, 2020. "Judicial Efficiency and Lending Quality," CSEF Working Papers 588, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:588

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    Judicial Systems; Non-Performing Loans; Banking Stability.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


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