Distributional Income Effects of Banking Regulation in Europe

We study the impact of stricter and more harmonized banking regulation along the income distribution using household survey data for 25 EU countries. Exploiting country-level heterogeneity in the implementation of European Banking Union directives allows us to identify causal effects. Our results show that these regulatory reforms aimed at increasing financial system resilience had heterogeneous effects along the income distribution in the short run. While more stringent regulation reduces income growth for low-income households, it tends to increase growth rates at the top of the distribution.