Bankruptcy regime and the banking system

Banks' behavior as creditors relies heavily on the content of legal rights granted by the national bankruptcy laws. Using a sample of 87 countries over the period 2005-2016, this paper investigates whether the degree of such legal rights influences the following banking indicators: (1) private credit, (2) bank lending-deposit spread, and (3) foreign banks' presence. Robust dynamic panel estimates indicate a significant and positive impact only on foreign banks' presence in countries with a high level of creditors' protection and bankruptcy systems that encourage the survival of financially distressed firms.