The impact of culture on government interventions in the banking sector

Abstract

In the aftermath of the Global Financial crisis, the governments offered financial institutions significant financial packages to re-establish financial stability. Yet, despite the rich literature on government interventions’ determinants and effects, scant attention has been paid to the relation between culture and government interventions across the banking sector. Analysing a sample of European countries during the period 2008–2020, we investigate empirically the effects of national culture on government interventions across the banking sector by employing logistic regression models. Our findings show that regulators are more likely to bail out banks and provide more substantial financial aid in less power-distant, less masculine, less hierarchical, and higher affective autonomous countries. The negative effect of culture on government interventions is mitigated in countries where the banking sector has a larger size, better capitalization, or lower default risk. A better institutional environment and more political rights alleviate the effect of culture on government interventions. (150 words).