Regulation and Accounting - Changing Landscape Credit Markets (May 2010)
Bank Regulation Is Changing: But for Better or Worse?
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Transcript of Bank Regulation Is Changing: But for Better or Worse?
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Bank Regulation Is Changing: But for Better or Worse?
Authors: James R. BarthGerard Caprio, Jr.
Ross Levine
Presented by Levan Bzhalava
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Do changes in bank regulation contributing positively to financial sector development?
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Introduction
• Subsequent changes have taken place in the regulatory environment since the late 1990s.
• Some countries have reformed their regulations to empower private monitoring, others did opposite.
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• 3 Surveys• 1st: 1998-99-2000
– 117 countries– 180 questions
• 2nd: 2003– 152 countries– 275 questions
• 3rd: 2006– 142 countries– 300+ questions
Data
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Survey questions• Entry into banking• Ownership• Capital• Activities• External auditing requirements• Internal management/organizational requirements• Liquidity and diversification requirements• Depositor (savings) protection schemes• Provisioning requirements• Accounting/information disclosure requirements• Discipline/problem institutions/exit, and• Supervision.The majority of questions are structured to be in a yes/no format.Simple and precise questions increase the response rate
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Bank regulation around the world
• Response to crises:Mexico - easing restrictions on banks.Argentina - tightened restrictions and policies ,
withdraw foreign banks • Most other crisis countries also moved in the
direction of greater restrictions.• U.S.A - dismantling barriers, separating
commercial banking, investment banking, and insurance.
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Supervision around the World
• Official supervisory power lowers bank development.
In countries with a weak institutional environment, it was associated with increased corruption in the lending process
• Private monitoring boosts bank development
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Regression
• Logit; • Cross-country OLS; • Cross-Bank OLS
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EquationsY = α + βXY - either bank development, the net interest margin, or
overhead costsX - matrix of explanatory variables from Survey
Logit (P) = α + βX P - probability that the country suffers a systemic crisis
(or the probability that a firm responds that corrupt bank officials are an impediment to its growth).
X - matrix of explanatory variables from Survey
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Conclusion
• Official supervisory power reduce bank development, increase corruption
• Look to why supervisory has not been working
• Restrictions on bank activities are bad• Focus on markets needs, improve
infrastructure, incentives to use it
• Diversification of bank activities is important
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“Policies may work differently in different political and institutional regimes”
Gerard Caprio, Williams College
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Supplementary sources • James R. Barth, Gerard Caprio, Jr. and Ross Levine (2002) “Bank Regulation and Supervision:
What Works Best,” www.bis.org/bcbs/events/b2ealev.pdf • Thorsten Beck, Aslı Demirgüç-Kunt, and Ross Levine (2005) “Bank Supervision and Corruption
in Lending,” Journal of Monetary Economics 53, 2131-2163 www.econ.brown.edu/fac/Ross_Levine/Publication/Forthcoming/Forth_3RL_Supervision%20Corruption%20Lending.pdf
• Gerard Caprio, Williams College “Bank Regulation Is Changing: But for Better or Worse?” www.hnb.hr/dub-konf/13-konferencija/caprio-college prezentacija.ppt?tsfsg=1817391646f8e9538cc7fbeaa2c53f48
• Photos sources: http://www.123rf.com/ ; Stock Photography and Stock Footage www.fotosearch.com/comstock/small-business/CSK198/ - 116k