The Impact of Banking Regulation on the Economic Performance of EU Countries in 2007-2009

Abstract

The article investigates the role of a broad array of banking regulatory features in shaping the resilience of European Union countries to the latest financial crisis. The study considers the level of output, the yearly averages of the month-to-month government bond yield spreads, and the yearly variance of these spreads as performance measures. Moreover, the author considers house price growth, public debt levels, financial openness and the extent of private credit as basic factors determining the vulnerability of EU countries to the crisis. The empirical specification is based on dynamic panel data models, which are estimated using the Generalized Method of Moments (GMM). The basic regressions including the main predictors of the crisis are expanded to include interaction terms between banking regulatory measures and the specified predictors. This approach is aimed at seizing the marginal effect of banking regulation on the impact of the respective factors of the crisis. The sample encompasses 25 EU countries during the period of 2004-2009. The choice of the time sample is aimed at capturing the developments in the economic cycle preceding the crisis, which affected the performance of EU economies during the downturn of 2007-2009. To capture the effect of the crisis itself, time effects are computed. The results point to a significant role of banking regulatory features in shaping the performance of EU countries as well as to their mitigating effect on the factors driving the latest financial crisis. JEL classification codes: F36, G15, G28Artykuł wpłynął do druku 4 marca 2013 r.

Antykryzysowe działania Europejskiego Banku Centralnego

“…z Wielką Brytanią czy Stanami Zjednoczonymi. Spektrum działalności i inwestycji banków było w niektórych krajach znacznie ograniczone (Sum 2013…”