ON THE PERFORMANCE OF DIFFERENTLY REGULATED FINANCIAL INSTITUTIONS - SOME EMPIRICAL-EVIDENCE

The paper raises two questions about the industrial economics of banking: First, why are financial market configurations so different across nations? We discuss the theoretical arguments by following the sequence Regulation-Structure-Performance (Section 2) Second, do the differences in regulation and structure matter? Section 3 provides empirical evidence pertaining to that question. Throughout the paper we refer to two polar cases of financial systems: market (M)- and bank (B)-based systems. As for banks, we distinguish between specialised and universal banks. Universal banking is a particular institutional representation of B-systems. A first empirical test relating macroeconomic growth to financial variables suggests that these variables matter. We then test with a set of 88 banks the effects of regulatory and structural variables on the level and variability of bank performance. We conclude that universal banks achieve a better risk-return trade-off, due to superior monitoring and information collection capacity.