Does Judicial Efficiency Lower the Cost of Credit?

The authors investigate the effect of judicial efficiency on banks' lending spreads for a large cross section of countries. They measure bank interest rate spreads for 106 countries at an aggregate level, and for 32 countries at the level of individual banks. The authors find that-after controlling for a number of other country characteristics-judicial efficiency, in addition to inflation, is the main driver of interest rate spreads across countries. This suggests that in addition to improving the overall macroeconomic climate in a country, judicial reforms, through a better enforcement of legal contracts, are critical to lowering the cost of financial intermediation for households and firms.

Bibliographic Details

Main Authors:	Laeven, Luc, Majnoni, Giovanni
Language:	English en_US
Published:	World Bank, Washington, DC 2003-10
Subjects:	JUDICIAL PROCESS, BANKING SYSTEMS, CROSS-COUNTRY EXPERIENCE, INTEREST RATE STRUCTURES, AGGREGATE VARIABILITY, INFLATIONARY PRESSURES, MACROECONOMIC STABILITY, JUDICIAL REFORM, LAW ENFORCEMENT, FINANCIAL INTERMEDIATION, ACCOUNTING, ADVERSE SELECTION, BALANCE SHEET, BALANCE SHEETS, BANK CREDIT, BANK LENDING, BANK LOANS, BANK REGULATION, BANK SIZE, BANK STRUCTURE, BANKING SYSTEM, BANKS, BORROWING, COMPETITIVENESS, CONSUMER PRICE INDEX, COST OF CAPITAL, CREDIT MARKETS, DEMAND CURVE, DEPOSITS, DEVELOPMENT ECONOMICS, DISCOUNT RATE, EARNING ASSETS, ECONOMIC POWER, EMPIRICAL ANALYSIS, EMPIRICAL EVIDENCE, EQUILIBRIUM, EXPROPRIATION, FINANCIAL MARKETS, FINANCIAL SERVICES, FINANCIAL SYSTEMS, FIXED ASSETS, FOREIGN BANKS, FOREIGN CURRENCY, FOREIGN ENTRY, FUTURE RESEARCH, GDP, GLOBALIZATION, GOVERNMENT BONDS, GOVERNMENT REGULATIONS, INCOME STATEMENTS, INEFFICIENCY, INFLATION, INFLATION RATE, INSURANCE, INSURANCE POLICIES, INTEREST EXPENSE, INTEREST INCOME, INTEREST RATE, INTEREST RATES, LAWS, LEGAL FRAMEWORK, LEGAL PROVISIONS, LENDING RATES, LIQUIDITY, MARKET POWER, MIDDLE INCOME COUNTRIES, MONEY MARKET FUNDS, MORAL HAZARD, OPERATING COSTS, OPERATING EFFICIENCY, OPERATING EXPENSES, POLITICAL ECONOMY, PORTFOLIO, PRIVATE PROPERTY, PROBLEM LOANS, PROFITABILITY, PROPERTY RIGHTS, REGULATORY FRAMEWORK, RESERVE REQUIREMENTS, SAVINGS, SAVINGS DEPOSITS, SECURITIES, SUBSIDIARIES, VALUATION, interest rate spreads,
Online Access:	http://documents.worldbank.org/curated/en/2003/10/2778729/judicial-efficiency-lower-cost-credit https://hdl.handle.net/10986/18042
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