Deregulation, Corruption, and Banks Failure in the US

This paper investigated the effects of deregulation and corruption on banks failure and the transmission channels. Empirical results obtained using panel count data on 48 US states over the period 1976-2015 revealed that the interstate deregulation reform as well as corruption increased banks failure. Luckily, the strong financial conditions of the performing banks counteracted to alleviate the intensity of the effect the deregulation would have normally had on banks failure. Hence, the negative indirect effects did not offset the positive one exerted through corruption. The main recommendation derived from the findings is that to be successful, banks reforms require strong banks financial conditions and a favorable State’s economic performance. Besides, they should embody built-in mechanisms that can prevent the occurrence of an induced level of corruption. • Analysis of the effects of deregulation and corruption on banks failure in the US • Investigate the transmission channels • Panel count data on 48 US States over the period 1976-2015 • the interstate deregulation reform as well as corruption increased banks failure • The strong financial conditions of the performing banks counteracted to alleviate the intensity of the effect the deregulation • The negative indirect effects did not offset the positive one exerted through corruption.