The impact of business regulations on bank performance in the European Union (2000-2010)

• Main Author: Kalyvas, Antonois Nikolaos
• Published: University of Sussex 2014
• Subjects: 658; HG1501 Banking
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.632792

This thesis examines the impact of several types of business regulations on bank performance, as measured by cost efficiency, in the EU economies over the 2000-2010 periods. First we investigate the impact of credit, labour and business regulation on the performance of the banking systems of the EU-10. The regulation indices are sourced from the Fraser Index of Economic Freedom (Gwartney et. al, 2012). In further analysis, we decompose the credit regulation variable in its components (private ownership of banks, foreign bank competition, private sector credit, limitations from interest rate controls and regulations) in order to find which type of credit regulation is more important for performance. Second, we examine the impact of several type of business regulations derived from the “Doing Business” project of the World Bank on bank performance as measured by cost efficiency in the EU-10 economies. More specifically we use regulation indices related to: i) starting a business, ii) getting credit, iii) paying taxes, iv) enforcing contracts, v) resolving insolvency, vi) protecting investors, and vii) employing workers. We put special emphasis on regulations related to “getting credit”, “paying taxes” and “starting a business” as the first type is directly relevant to the banking sector while the next two on the top of the EU agenda. In further analysis we investigate if the impact of business regulation on bank performance is influenced by institutional quality as measured by rule of law and corruption variables. Third, we assess the impact of different types of labour regulation on bank performance, as measured by cost efficiency, in the five countries of the eurozone periphery (Greece, Ireland, Italy, Portugal, Spain) over the 2000-2010 periods. We source the labour regulation variables from the Fraser Index of Economic Freedom (Gwartney et. al, 2012) and from the Employment Protection Index produced by the Organisation for Economic Co-operation and Development (OECD). In further analysis we investigate if the impact of labour regulation on bank performance is influenced by the country-level law enforcement capacity. Finally, some conclusions are provided along with limitations of this research and an agenda for future work.