Differences in bank regulations: the role of governance and corruption

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.