Bank Profit Efficiency and Financial Consumer Protection Policies

Abstract

Using a sample of 1,619 commercial banks from 82 countries we investigate the impact of financial consumer protection policies on bank profit efficiency estimated with a production frontier function. Our results show that more regulatory requirements decrease bank profit efficiency. We confirm this finding under various assumptions for the bank inputs and outputs used in their production process. We also find that the impact of financial consumer protection policies on bank profit efficiency is conditional on a country’s overall level of development, institutional quality, and financial freedom.