Does judicial efficiency lower the cost of credit?

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We investigate the effect of judicial efficiency on banks’ lending spreads for a large cross-section of countries. We measure bank interest rate spreads for 106 countries at the country level and for 32 countries at the level of individual banks. We find that judicial efficiency and inflation rates are the main drivers of interest rate spreads across countries. Our results suggest that improvements in judicial efficiency and judicial enforcement of debt contracts are critical to lowering the cost of financial intermediation for households and firms.