Journal of Financial and Quantitative Analysis

Research Articles

Effects of Bank Regulation and Lender Location on Loan Spreads

Li Haoa1, Debarshi K. Nandya2 and Gordon S. Robertsa3

a1, Barclays Wealth, 41/F Cheung Kong Center, 2 Queen’s Road Central, Hong Kong

a2, International Business School, Brandeis University, 415 South St, Waltham, MA 02454

a3, Schulich School of Business, York University, 4700 Keele St, Toronto, Ontario, M3J 1P3, Canada


We investigate how differences in regulation regarding banking-commerce integration and banking sector concentration influence loan spreads across 29 countries. Theoretical research posits conflicting effects based on agency costs, information asymmetry costs, and market power. Increased integration is associated with lower loan spreads in countries with low concentration, but moving to high levels of integration increases spreads in countries with high concentration. Starting from lower levels, an increase in integration is associated with an increase in informational efficiency that disappears at higher levels of integration. We also show that market concentration affects loan spreads differently under high-, medium-, and low-integration regimes.