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Bank Regulation Is Changing: But for Better or Worse?. Authors: James R. Barth Gerard Caprio , Jr. Ross Levine Presented by Levan Bzhalava. Do changes in bank regulation contributing positively to financial sector development?. Introduction.

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bank regulation is changing but for better or worse

Bank Regulation Is Changing: But for Better or Worse?

Authors: James R. Barth

Gerard Caprio, Jr.

Ross Levine

Presented by LevanBzhalava

introduction
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.
slide4
Data
  • 3 Surveys
      • 1st: 1998-99-2000
        • 117 countries
        • 180 questions
      • 2nd: 2003
        • 152 countries
        • 275 questions
      • 3rd: 2006
        • 142 countries
        • 300+ questions
survey questions
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

bank regulation around the world
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.
supervision around the world
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
regression
Regression
  • Logit;
  • Cross-country OLS;
  • Cross-Bank OLS
equations
Equations

Y = α + βX

Y - either bank development, the net interest margin, or overhead costs

X - 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

conclusion
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
slide19

“Policies may work differently in different political and institutional regimes”

Gerard Caprio, Williams College

supplementary sources
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