Do formal and informal institutions shape the influence of sustainable banking on financial development?

This paper explores the moderating role of formal and informal institutions on the sustainable banking and financial development link. We compute an aggregated measure of sustainability in the banking sector for a sample of 46 countries for the period 2010-2018. Our results indicate that sustainable banking positively influences financial development only in countries with strong formal institutions. Nevertheless, informal institutions can generate the necessary trust in the banking sector, allowing the positive effect of sustainable banking on financial development in countries with weak formal institutions. The results are robust after controlling the potential endogeneity issuesThe authors acknowledge financial support from the Spanish Ministry of Economy and Competitiveness, Project RTI2018-097447-B-I00 and PID2020-118064GB-I00, and from the Professorship Excellence Program in accordance with the multi-year agreement signed by the Government of Madrid and the Autonoma University of Madrid (Line #3