Domestic financial regulation and external borrowing

Sergi Lanau

No 429, Bank of England working papers from Bank of England

Abstract: This paper studies the relationship between domestic financial regulation and the incentive of non-banks to borrow from banks abroad using BIS banking data in a gravity framework. Conditional on a large set of macroeconomic controls, we find that under tighter domestic financial regulation non-banks borrow more abroad. Non-banks in a country on the upper quartile of a financial deregulation index borrow 21%–28% more than non-banks in a country with minimum regulation. The finding also holds for more disaggregated regulation measures. Interest rate controls and entry barriers to the banking sector are the most relevant types of regulation. The results in this paper indicate that international borrowing and lending is a prominent element to be taken into account in designing financial stability tools.

Keywords: Bank regulation; cross-border banking (search for similar items in EconPapers)
JEL-codes: G15 G28 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-05-31
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0429

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