美联储-金融自由化、繁荣和崩溃 Financial Liberalizations,Booms,and Crashes

FinanceandEconomicsDiscussionSeries

FederalReserveBoard,Washington,D.C.

ISSN1936-2854(Print)

ISSN2767-3898(Online)

FinancialLiberalizations,Booms,andCrashes

MaximilianGrimm,MoritzSchularick,EmilVerner

2026-034

Pleasecitethispaperas:

Grimm,Maximilian,MoritzSchularick,andEmilVerner(2026).“FinancialLiberalizations,Booms,andCrashes,”FinanceandEconomicsDiscussionSeries2026-034.Washington:BoardofGovernorsoftheFederalReserveSystem,

/10.17016/FEDS.2026.034

.

NOTE:Sta优workingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.Theanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchsta优ortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.

FinancialLiberalizations,Booms,andCrashes

★

MaximilianGrimm

†

MoritzSchularick

‡

EmilVerner

§

Thisversion:April20,2026

Abstract

Financialliberalizationisoftenseenasawaytodeepencreditmarketsandstimulateeconomicgrowth,butitmayalsofuelcreditboomsthatendincrisis.Weconstructanewcross-countrydatabaseofbankingregulationpoliciescovering21regulatoryindicatorsfor18advancedeconomiessinceWorldWarII.Wedistinguishliberalizationsthatdirectlyrelaxconstraintsoncreditsupplyfrombroaderfinancialreforms.Liber-alizationsthatdirectlyaffectcreditsupplyleadtosubstantialexpansionsinprivatecredit.Creditexpansionisconcentratedinnon-tradablesectorsandisnotaccompaniedbyhigherinterestratesorcreditspreadsintheshortrun,consistentwithanoutwardshiftincreditsupply.RealGDPrisesoverthefollowing2to4years,butthegainsaretemporary.Onaverage,GDPreturnstotrendinthemediumrun,andthereisanincreaseintheriskoffinancialcrisisandworsedownsidegrowthoutcomes.Onlyliberalizationsthatdirectlyexpandcreditsupplygeneratetheseboom-bustdynamics.Basedontheseestimates,financialliberalizationiswelfare-improvingforcoefficientsofrelativeriskaversionbelow7.2,amoderatelyhighvalue.

JELclassification:E44,G01,G21,G28,N20,O43,

Keywords:bankingregulation,financialliberalization,banklending,growth,bankingcrises

★WethankseminarparticipantsattheIMFandFederalReserveBoardforvaluablecomments.TheviewsexpressedherearethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheFederalReserveBoardortheFederalReserveSystem.Allerrorsareourown.

†FederalReserveBoard.Email:

maximilian.grimm@

.

‡KielInstitute,SciencesPoParis,andCEPR.Email:

moritz.schularick@ifw-kiel.de

.

§MITSloanSchoolofManagementandNBER.Email:

everner@

.

1

1Introduction

Financialliberalizationisseenasawaytodeepencreditmarketsandraiseeconomicactivity,butitmayalsofuelcreditboomsthatendincrisis.Thistradeoffhasattractedrenewedattentionamidrecentdebatesoverwhethertorollbackregulationsputinplaceafterthe2008financialcrisis.

1

Inthispaper,westudythistradeoffusinganewcross-countrydatabaseofbankingregulationpoliciesfor18advancedeconomiessinceWorldWarII.OurmainfindingisthatliberalizationsthatdirectlyrelaxconstraintsoncreditsupplyareassociatedwithacreditexpansionandatemporaryboominGDP,butalsoraisetheriskofafinancialcrisisandeconomiccrashinthemediumterm.

Ouranalysisisbasedonanewcross-countrydatasetofbankingregulation.Wecode21regulatoryindicatorscapturingbalancesheetrestrictions,bankentrybarriers,mortgagemarketregulation,andrestrictionsoninternationalfinance.Thebackboneofthedatasetisasetofhistoricalaccountscompiledforeachcountry-yearinthesample,drawingonmorethanathousandsourcesfromcentralbanks,regulators,andthesecondaryliterature.

2

Thedatabaseisdesignedtocapturediscreteshiftsinthestanceofregulationratherthanchangesinregulatoryintensity,andwedocument386distinctpolicychanges.Thebroadtemporalandgeographiccoverageofourdatabasehelpsaddressthesmall-samplechallengeposedbytherarityofsystemicfinancialcrises.

Acentralcontributionofthispaperistoisolateliberalizationsthatdirectlyrelaxconstraintsoncreditsupply.Theseincludereformsaffectingrestrictionsonbankassets,lendingrates,andbarrierstoentryintocreditmarkets.Intheory,suchreformsmaygeneratelargegainsbydeepeningcreditmarkets(

McKinnon

,

1973

).However,theymayalsoposethegreatestrisksbyfuelingcreditboomsthatcangobust(

SchularickandTaylor

,

2012

;

Mianetal.

,

2020

).Wedistinguishthesecredit-supplyliberalizationsfrombroaderfinancialreformsthatoperatethroughotherchannels,includingrisk-takingincentives,marketstructure,internationalcapitalallocation,orcreditdemand.

Wefirstshowthatliberalizationsthatdirectlyexpandcreditsupplyleadtosubstantialincreasesincredittotheprivatesector.Liberalizingasinglecredit-supplyregulationraisesrealprivatecreditbyabout3.5%overthenextfiveyears.Amajorcredit-supplyliberalization,inwhichatleastthreeregulationsareliberalized,boostsrealprivatecreditbyover12%afterfiveyears.Moreover,thenatureofliberalizationmatters.Theassociationbetweenliberalizationandcreditistwiceasstrongforcredit-supply-relatedregulatory

1Forinstance,U.S.authoritiesaimtounlock$2.6trillionofadditionallendingthroughbankingderegulation(

TheFinancialTimes

,

2025

),butEuropeanregulatorsaremorewaryofregulatoryrollback(

Bailey

,

2025

;

Lagarde

,

2025

).Manydevelopingeconomies,bycontrast,stillfacefundamentalregulatoryconstraintsthatadvancedeconomiesabolisheddecadesago(

Caliceetal.

,

2020

;

WorldBank

,

2021

).

2TheHistoricalAccountsareavailableonline(

link

).

2

policiesasforothertypesofbankingderegulation.

Theriseincreditfollowingcredit-supply-basedliberalizationisconcentratedinsectorswherefirmsaremorelikelytobefinancing-constrainedandexposedtocollateralfeedbacks,especiallyrealestateandothernon-tradablesectors(

Mu…llerandVerner

,

2024

).Moreover,thesecreditexpansionsarenotaccompaniedbyhigherinterestratesorcreditspreadsintheshortrun.Thesepatternsareconsistentwithanoutwardshiftincreditsupplyratherthananincreaseincreditdemand(

Mianetal.

,

2017

;

KrishnamurthyandMuir

,

2025

).

Next,weshowthatfinancialliberalizationgeneratesaboom-and-bustcycleinrealeconomicactivity.RealGDPrisessignificantlyinthefirstfewyearsafterliberalization.However,thegainsreverseinthemediumterm,andoutputreturnstotrendafterroughlyeightyears.Credit-supply-relatedregulatorypoliciesarethedriversofthispattern;othertypesofbankingreformhavelittleeffectonrealoutcomes.Amongcredit-supplyliberaliza-tions,theremovalofthemostdirectquantityandpricecontrolsproducesthestrongesthump-shapedresponsesinbothcreditandrealactivity.

Whydoesbankingderegulationpredictmedium-termgrowthreversals?Weanswerthisquestionbyconnectingtwoliteraturesthathavelargelydevelopedinparallel.Creditbooms,especiallythoseinthecredit-supply-sensitivenon-tradablesector,oftenendinsystemicfinancialcrises(

SchularickandTaylor

,

2012

;

Kalantzis

,

2015

;

Mu…llerandVerner

,

2024

),whichimposesevereandpersistentcostsontherealeconomy(

CerraandSaxena

,

2008

;

ReinhartandRogoff

,

2009

).Aseparate,mostlytheoreticalliteratureontheconsequencesoffinancialliberalizationemphasizesthatbankingderegulationheightensfinancialfragility(e.g.,

Diaz-Alejandro

,

1985

;

Hellmannetal.

,

2000

).Highercrisisriskthusreconcilestheshort-termboomswiththemedium-termdeteriorationinmacroeconomicoutcomeswedocumentafterbankingderegulation.

Wefindevidenceconsistentwithheightenedfinancialfragilityfollowingliberalization.Afterashortperiodoflow-riskgrowth,theriskoffinancialcrisesrisessharplyandremainselevatedforseveralyears.Eightyearsafterliberalization,thecumulativeriskofafinancialcrisisis10percentagepointshighercomparedtotheno-liberalizationcounterfactual.Thispatternholdsonlyforcredit-supply-relatedregulatorypolicies,consistentwithcreditsupplybeingthekeychannellinkingderegulationtofinancialfragility.Wealsofindthatderegulationpredictsahigherlikelihoodofleft-tailGDPgrowthevents.Tofurthersupporttheargumentthattheriskoffinancialcrisesisrelatedtothederegulation-inducedboom,weshowthatderegulationisfollowedbyanincreaseinthefragilityofbankbalancesheetsviaariseintheloans-to-depositsratioandintheuseofnon-corefunding.

Toidentifytheseeffects,wecombinelocalprojections,syntheticcontrolmethods,andanarrativeapproachtoidentification.Acrossmethods,theresultspointtothesame

3

conclusion:liberalizationsthatdirectlyexpandcreditsupplygeneratecreditboomsandshort-rungainsinrealactivity,butalsoincreasefinancialfragilityandmedium-runcrashrisk.Theresultsarerobusttoarangeofpotentialconfounders,includingstandardmacroeconomiccontrols,tradeliberalizationpolicy,andtheideologyofpoliticalleaders.Moreover,whilefinancialliberalizationcouldbeundertakenpartlyinresponsetostrongergrowthprospectsandhighercreditdemand,itislessplausiblethatsuchpolicieswouldbeintroducedinresponsetoheightenedfinancialcrisisriskinthreetosixyears.

Inthefinalpartofthepaper,weuseourempiricalestimatesinasimplewelfareexercisetoillustratethepolicytradeoffcreatedbyfinancialliberalization.Whilederegulationincreasesshort-runconsumptionthroughfastergrowth,italsoincreasescrisisriskandthustheriskofleft-tailmacroeconomicoutcomes.Forrisk-averseagents,theneteffectofbankingderegulationonwelfareisaprioriambiguous.Weuseourempiricalestimatestoconstructcounterfactualconsumptionpathsunderreformandnon-reform,accountingfortheincreaseintailrisk.Ourcounterfactualexercisesuggeststhatfinancialliberalizationimproveswelfarewhenthecoefficientofrelativeriskaversionisbelowγ=7.2.Thisvalueishigherthanconventionallevelsofriskaversionusedtocalibratemacroeconomicmodels,butitiswithintherangecommonlyassumedinmacro-financeandassetpricing,highlightingthatthemedium-termdownsiderisksareeconomicallymeaningful.

RelatedliteratureThispapercontributestothreestrandsoftheliterature.

First,webuildonagrowingliteraturethatusescompositeindicestomeasurecomplexgovernmentpoliciesthatcannotbecapturedbysingledataseries.Ratherthanrelyingonquantitativemetrics,thisliteratureconstructsmulti-dimensionalindicesfromqualitativeinformationbydefiningclearcodingrulesthatsystematicallymaphistoricalinformationintoquantitativescoresacrossdifferentpolicydimensions.

3

Severalindicescapturebroadfinancialliberalizationpolicies(e.g.,

Demirgu…c¸-KuntandDetragiache

,

1998

;

Mehrezand

Kaufmann

,

1999

;

KaminskyandSchmukler

,

2008

;

Abiadetal.

,

2010

).Ourpapermakesthreecontributionstothisliterature.First,weextendthetimecoverageofexistingindices.Second,weincorporatepolicydimensionsnotcapturedinpreviousstudies.Third,wesystematicallydocumenteveryregulationpolicybasedonaclearlydefinedCodingGuideincomprehensiveHistoricalAccounts.Asaresult,ourdatasetcoversamuchbroadersetofbankingregulationpoliciesoveralongerhorizonthanexistingstudies,whileminimizingdiscretionthroughtransparentdocumentation.Wediscusscomparisonswith

3Notableexamplesoutsidethefinancialliberalizationliteratureinclude

Cukiermanetal.

(

1992

;centralbankindependence),

LaPortaetal.

(

1998

;legalprotectionofcreditorsandshareholders),

Nicolettiand

Scarpetta

(

2003

;productmarketregulation),

LaPortaetal.

(

2006

;securitieslaws),

Kholodilin

(

2020

;rentalmarketregulation),

Reddyetal.

(

2020

;immunityofpoliticians),and

Herre

(

2023

;ideologyofpoliticalleaders).

4

otherchronologiesinmoredetailafterintroducingourdatabase.

Second,weprovidenewevidenceontheconsequencesoffinancialliberalization.Severalstudiesfindthatfinancialliberalizationoftenprecedesbankingcrises(

Demirgu…c¸-Kuntand

Detragiache

,

1998

;

KaminskyandReinhart

,

1999

;

MehrezandKaufmann

,

1999

).Morerecentstudiesfindthattheliberalizationofcreditceilings,oneof21componentsinourindex,predictscreditgrowthandfinancialcrises(

BaronandGreen

,

2025

)andreallocationofcredittowardrealestate(

Daietal.

,

2025

).

Henry

(

2000

)and

Bekaertetal.

(

2005

)findthattheirequitymarketliberalizationmeasurespredictrealinvestmentandeconomicgrowth,respectively.

Rancireetal.

(

2006

)usethebinaryindicatorof

Bekaertetal.

(

2005

)andfindthatequitymarketliberalizationincreaseslong-rungrowthdespiteitspositiveassociationwithfinancialcrisisrisk.Usingtheindexof

Laeven

(

2003

),

Galindoetal.

(

2007

)findthatfinancialliberalizationimprovestheefficiencyofinvestmentallocation.

4

Ournoveldatabaseprovidesnewestimatesoftheconsequencesoffinancialliberalizationthat,importantly,distinguishbetweenvarioustypesofliberalization.Weshowthatfinancialliberalizationleadstoboomsandbusts,alongwithanelevatedriskoffinancialcrisis,butonlywhenliberalizationdirectlyaffectscreditsupply.Assuch,weshowthatthetypeofliberalizationmatters,whichhelpsunderstandwhystudiesdifferintheirassessmentofthebenefitsoffinancialliberalization.Moreover,oursyntheticcontrolandnarrativeidentificationstrategies,evidenceonbankbalancesheetfragility,andwelfarecalculationsarealsonewtothisliterature.

Finally,werelatetothebroaderliteratureoncreditcyclesandfinancialcrises.Arobustfindingisthatcreditexpansionspredictfinancialcrisesandgrowthslowdowns(

Schularick

andTaylor

,

2012

;

Jordetal.

,

2013

;

BaronandXiong

,

2017

;

Mianetal.

,

2017

;

Greenwood

etal.

,

2022

;

Mu…llerandVerner

,

2024

).Thisliteraturehasarguedthatrelaxationsincreditsupplyareanimportantdriverofcreditbooms(e.g.,

MianandSufi

,

2018

;

Mianetal.

,

2020

;

SufiandTaylor

,

2022

;

KrishnamurthyandMuir

,

2025

).Butthereislimitedsystematicevidenceonwheresuchshiftscomefrom.

5

Wespecificallyclassifyliberalizationpoliciesthatdirectlyrelaxedrestrictionsoncreditsupplyandfindsubstantiallystrongereffectsoncreditgrowththantheeffectsimpliedbyotherindices.Ourfindingsthusidentifyoneimportantunderlyingsourceofcreditsupplyexpansionandtraceoutitsconsequences,

4Themetastudyof

Bumannetal.

(

2013

)findsapositivealbeitweakrelationshipbetweenfinancialliberalizationandeconomicgrowth.

Marchionneetal.

(

2022

)measurebankingregulationwiththeHeritageFoundationFinancialFreedomIndex(FFI)fortheperiod1996–2017.

Marchionneetal.

(

2022

,p.3)notethatthealternativetotheFFI“wouldhavebeenspecificmeasuresofbankingregulations”,which“arenotavailablebecausespecificregulatorymeasuressufferfromincompleteness,lackofstandardization,andinconsistencyacrosscountries.”

5EvidencefortheUnitedStatesindicatesacausalrelationshipbetweenbankingderegulation,creditsupplyexpansions,andmacroeconomicoutcomes(

FavaraandImbs

,

2015

;

Koch

,

2015

;

DiMaggioandKermani

,

2017

;

Mianetal.

,

2020

;

Adelinoetal.

,

2025

).

5

consistentwithcase-studyevidencefromtheNordicandJapanesecreditboomsofthe1980s(

KindlebergerandAliber

,

2005

).Thepredictableboomandreversalinducedbysupply-basedliberalizationsisconsistentwiththeviewthatbusinesscyclescanariseduetoendogenousboom-bustphenomenafromfinancialfrictions(

Beaudryetal.

,

2020

)oroveroptimisticbeliefs(

Bordaloetal.

,

2018

).

RoadmapThenextsectionoutlinestheoreticalpredictionsfortheeffectsofbankingderegulationoncredit,realactivity,andfinancialstabilityrisk.

Section3

describesournewdatasetonbankingregulationpolicies,comparesitwithexistingdatabases,andprovidesadescriptiveoverviewof(credit-supply-related)bankingregulationacrosstimeandspace.

Section4

presentsourempiricalanalysisoftheeffectofbankingliberalizationoncreditsupplyusinglocalprojections,syntheticcontrolmethods,andanarrativeapproach.

Section5

documentsapost-deregulationboom-bustpatterninrealeconomicactivityandprovidesevidencethatsystemicfinancialriskexplainsthemedium-termcrash.

Section6

discussesthenetwelfareimplicationsofderegulation,and

Section7

concludes.

2PREDIcTIoNsoNTHEEFFEcTsoFFINANcIALLIBERALIzATIoN

Credit-supply-basedfinancialliberalizationFinancialliberalizationisamultidimen-sionalprocess,coveringrelaxationsonrestrictionsacrossarangeoffinancialactivities.Ourclassificationfocusesonliberalizationofbankingregulations.Withinbankingreg-ulations,wedistinguishconceptuallybetweenpoliciesthatdirectlyrelaxconstraintsontheavailabilityofcredit,whichwerefertoascredit-supply-basedpolicies,andotherreforms.Credit-supply-basedpoliciescapturedirectrestrictionsoncredit,lendingrates,bankassetholdings,andmarketcontestability.Thesepoliciesshouldhavetheclearestfirst-ordereffectsoncreditexpansion.Otherpoliciescapturerisk-takingincentives,risksharing,liquidityprovision,theliabilitystructureofthefinancialsystem,accesstointernationalfinance,andcreditdemand.Tobeclear,someofthesepoliciesarealsolikelytohaveeffectsoncreditsupply,butthemechanismsaremoreindirect.

Thedistinctionbetweencredit-supply-basedliberalizationsandotherpoliciesisusefulbecausedifferentdimensionsofliberalizationmayhavedifferentimplicationsforcreditandgrowth.Theoriesofthebenefitsandrisksofliberalizationstressthiscreditsupplychannel,aswediscussnext,sothedistinctionallowsustomoresharplytesttheoreticalpredictions.Inthedata,wewillconfirmthatcredit-supply-basedpoliciesindeedhavestrongereffectsoncredit,supportingthisargument.

6

LiberalizationboostscreditandgrowthAprominentviewholdsthatrelaxingpolicies

thatconstraincreditsupplyexpandsfinancialintermediationandtherebyeconomicgrowth.Thisargumentgoesbackto

McKinnon

(

1973

)and

Shaw

(

1973

),whoemphasizethatrestrictionssuchasinterest-rateceilings,directedcreditprograms,andbarrierstobankentryandexpansion(allcapturedbyoursupplyindex)reducesavings,limitintermediation,anddistorttheallocationofcapital.Removingsuchrestrictionsshouldthereforeexpandthesupplyofexternalfinanceandimprovetheabilityofbanksandotherintermediariestofundproductiveinvestment(

Fry

,

1997

).

Thefinance-and-growthliteratureidentifiesseveralchannelsthroughwhichliberal-izationcanraiseeconomicactivitythroughexpandedcredit(

Levine

,

2005

).Expandedcreditsupplyshouldlowerthecostofexternalfinance,raiseinvestment,andreallocatecapitaltowardfirmsandsectorswithstrongergrowthopportunities(

RajanandZingales

,

1998

;

Wurgler

,

2000

;

Bertrandetal.

,

2007

).Alargeempiricalliteraturelinkscreditmarketdeepeningtolong-runeconomicgrowth(e.g.,

KingandLevine

,

1993

;

Becketal.

,

2000

;

JayaratneandStrahan

,

1996

).Liberalization,especiallyofcredit-supplyconstraints,maybeoneforcefordeepeningcreditmarkets.

FinancialliberalizationcausesunsustainablecreditboomsandfinancialcrisisriskAmorepessimisticviewemphasizesthatfinancialliberalizationincreasestheriskoffinancialcrisesbecauseitremovesrestrictionsthat,perhapsincidentally,performprudentialfunc-tions.Thisviewgoesbackatleastto

Diaz-Alejandro

(

1985

),writingontheliberalizationsinLatinAmerica.Suchrisksmightarguablybehighestforcredit-supply-basedliberalizations,asthiscansupplythecentralfueloffinancialfragility:theaccumulationofexcessivedebt.Onemechanismforincreasedfragilityoperatesthroughcompetitionandbankincentives.

Byintensifyingcompetitionandcompressingintermediationrents,liberalizationcanerodebanks’franchisevaluesandincreaserisk-taking(

Hellmannetal.

,

2000

).Deregulationthatexpandsthescopeofpermissibleactivitiesmaycreatenewopportunitiesforrisk-takingandmakeintermediarieslarger,morecomplex,andthushardertomonitoranddisciplineeffectively(

Barthetal.

,

2004

).

Relaxedconstraintsoncreditsupplymaythenigniteaself-reinforcingcreditexpansionthroughvariouschannels.Creditgrowthmayboosttheeconomyandspuroptimism(

Minsky

,

1977

;

KindlebergerandAliber

,

2005

;

Bordaloetal.

,

2018

).Lowdefaultratesmay,foratime,justifythatoptimism,reinforcingcreditgrowth(

Greenwoodetal.

,

2019

).Financialliberalizationcangenerateassetpricebubblesbecauseittriggerscreditboomsthatinflateassetprices(

AllenandGale

,

1999

,

2000

).Assetpriceincreasesrelaxcollateralconstraints,leadingtomoreborrowingandpushinguppricesfurther(

KiyotakiandMoore

,

7

1997

).

Theexpansionincredit,however,maysowtheseedsofapotentialbustandcrisiswhenexpectationsaredisappointed.Onceanegativeshockoccurs,defaultscantriggerabankingcrisisandareversalincreditsupply.Moreover,elevateddebtconstrainsdemand.Evenwithrationalexpectations,theliberalization-inducedexpansionincreditcanbesociallyexcessivebecauseagentsdonotinternalizethattheincreaseinleveragenegativelyimpactsassetpricesandaggregatedemandwhenanegativeshockoccurs(

Lorenzoni

,

2008

;

Farhi

andWerning

,

2016

).

ReconcilingthetwoviewsAsmallerliteraturestudiesfinancialliberalizationasatradeoffbetweenhigheraveragegrowthandgreatercrisisrisk.Inthesemodels,liberalizationrelaxesborrowingconstraints,expandsinvestment,butalsoincreasesleverageandfinancialfragility.Theresultisthatliberalizationcanraiseaveragegrowthevenasitincreasestheprobabilityorseverityofcrises.

In

Rancireetal.

(

2008

),liberalizationrelaxesborrowingconstraintsandraisesinvest-mentandgrowth,butalsoinducessystemicrisk-takingandoccasionalcrises.

Rancire

andTornell

(

2016

)showthatfinancialliberalizationraisesaggregategrowthbyfreeingexternal-finance-dependentfirmsfromtheirborrowingconstraintsthroughnewfinancinginstruments,therebyraisingproductionefficiency,butthenewfinancinginstrumentsalsocreatesystemicrisk.In

DanielandJones

(

2007

),liberalizationgeneratesahump-shapedresponseofcrisisrisk.Riskrisesduringthetransitionascompetitionerodesfranchisevaluesandencouragesgamblingincentives,butfallslaterastheeconomymaturesandtheefficiencygainsfromliberalizationpersist.

3Data

Ouraimistoquantifytheregulatorystanceofadvancedeconomies’commercialbankingsystemsovertimeandtoassesstheimpactofbankingregulationandliberalizationonfinancialmarketsandthemacroeconomy.Toachievethis,weconstructanewdatasetofregulatorypoliciesaffectingcommercialbanksfor18OECDcountriescoveringtheentirepost-WWIIperiod.Wecompilequalitativeevidencefromapproximately1200primaryandsecondarysourcesandcodepoliciesalongfivedimensions:mortgage-marketregulation,internationalfinancialrestrictions,bankentrybarriers,banks’asset-siderestrictions,andbanks’liability-siderestrictions.

Thissectionoutlinesthestrategyandmethodologyweemploytoconstructadatasetofbankingregulationpoliciesthatspansallfiveliberalizationdimensionsacrossallcountriesandyearsinoursample.Additionally,weexplainhowweconvertthisqualitativeinforma-

8

tionintoaquantitativecommercialbankingliberalizationindexandprovideadescriptiveoverviewoftheresultingindex.

3.1Coverageandinterpretationofregulatorypolicies

Webeginbyspecifying21questions,listedin

Table1

.Thespecificationofthesequestionsbuildsonandextends

Abiadetal.

(

2010

).

6

Asiscommonintheliteratureoutlinedabovethatcreatesquantitativeindicesfromqualitativehistoricalinformation,wecodeeachquestionasabinaryindicator(“yes/liberalized”or“no/regulated”)foreverycountry-yearinthesample.Takentogether,the21indicatorscapturekeyaspectsofthestanceofbankingregulation.

Table1:Overviewofthebankingregulationquestions.

DimensionQuestion

Credit-supply-(1)Cancommercialbanksoperateinthemortgagemarket?

relatedpolicies(2)Doregulationsrestrictforeignbanksfromentering?

(3)Doregulationsrestrictentrybydomesticbanks?

(4)Doregulationslimitgeographyorbranching?

(5)Doauthoritiesregulatemortgageinterestrates?

(6)Doceilingslimitoverallcreditexpansion?

(7)Doauthoritiescontrollendingrates?

(8)Doreserverequirementsapply?

(9)Mustbanksholdgovernmentsecurities?

Other(10)Docapitaladequacyrequirementscoverresidentialmortgages?

liberalization(11)Doesapublicmortgagesecuritizationprogramexist?

policies(12)DoregulationssetmaximumLTVratiosforresidentialmortgages?

(13)Canc