We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find that where entry was more restricted the cost of credit was higher and -contrary to expectations-access to credit lower. The only benefit of these restrictions was a lower proportion of bad loans. Liberalization brings a reduction in rates spreads and an increased access to credit at a cost of an increase in

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... loans. In provinces where restrictions to bank competition were most severe, the proportion of bad loans after deregulation raises above the level present in more competitive markets, suggesting that the pre-existing conditions severely impact the effect of liberalizations. * We are grateful to the Foundation Banque de France for funding this paper. We thank Marco Pagano and Fabio Schiantarelli and participants at the Bank of Italy conference "Financial Structure, Product Market Structure and Economic Performance" and the Lisbon European Banking History conference. Luigi Guiso thanks the EEC and MURST for financial support, while Luigi Zingales thanks the Center for Security Prices and the Stigler Center at the University of Chicago for financial support.