Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985





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    • Authors are, respectively, at University of Chicago Graduate School of Business, National Bureau of Economic Research, Centre for Economic Policy Research, and Institute for the Study of Labor; Massachusetts Institute of Technology, National Bureau of Economic Research, and Centre for Economic Policy Research; HEC School of Management and Centre for Economic Policy Research. We are especially grateful to the editor, an anonymous referee, Anil Kashyap, Luc Laeven, Jacques Melitz, Atif Mian, Sendhil Mullainathan, Stew Myers, Paola Sapienza, Phillip Strahan, and Luigi Zingales for many helpful discussions. We also benefited from the comments of seminar participants at the Massachusetts Institute of Technology, the Centre for Economic Policy Research and Bank of Italy Conference on Banking and Industry Structure, the Centre de Recherche en Economie et Statistique, the National Bureau of Economic Research Organizational Economic Conference, the National Bureau for Economic Research Corporate Finance Meetings, the European Summer Symposium on Financial Markets in Gerzensee, the Stanford Institute for Theoretical Economics, and the University of Oregon.


We investigate how the deregulation of the French banking industry in the 1980s affected the real behavior of firms and the structure and dynamics of product markets. Following deregulation, banks are less willing to bail out poorly performing firms and firms in the more bank-dependent sectors are more likely to undertake restructuring activities. At the industry level, we observe an increase in asset and job reallocation, an improvement in allocative efficiency across firms, and a decline in concentration. Overall, these findings support the view that a more efficient banking sector helps foster a Schumpeterian process of “creative destruction.”