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Abstract
This paper provides a detailed explanation of cross‐country differences in bank regulations and their sources. The results suggest that the patterns of bank regulations imply important differences between developed and developing countries. While developing countries have stricter banking regulations, they are more likely to reduce competition among banks and provide greater safety nets to existing banks. The choice of banking regulations is affected by countries’ political characteristics, which are in turn endogenous to countries’ historical experiences and cultural characteristics. When political characteristics are replaced by corruption control, less corruption leads to less denied entries and banking restrictions as well as more constrained deposit insurance schemes. This implies that bank regulations may not be easy to change.
Notes
1. The data on executive constraints are from the Polity IV Database, available at: www.cidm.umd.edu/inscr/polity/index.htm.
2. Although not reported in the paper for space reasons, we also used two alternative measures of a country’s political characteristics such as executive competition and executive openness that measure the openness of a country’s political system to entry. When using these alternative measures, our results did not change qualitatively. These results are available from the author upon request.
3. The data on latitude are available in La Porta et al. (Citation1999).
4. The data on years of independence are from the CIA World Factbook, available at: https://www.cia.gov/library/publications/the-world-factbook/index.html.
5. Tables and include corruption control as well. We will discuss this variable later in this section.
6. These results are available from the author upon request.