Bank Regulation Is Changing: But for Better or Worse

1
Bank Regulation Is Changing But for Better or
Worse?

• Authors James R. Barth
• Gerard Caprio, Jr.
• Ross Levine
• Presented by Levan Bzhalava

2

• Do changes in bank regulation contributing
  positively to financial sector development?

3
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.

4
Data

• 3 Surveys
• 1st 1998-99-2000
• 117 countries
• 180 questions
• 2nd 2003
• 152 countries
• 275 questions
• 3rd 2006
• 142 countries
• 300 questions

5
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

6
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.

7
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

8
Regression

• Logit
• Cross-country OLS
• Cross-Bank OLS

9
Equations

• Y a ßX
• Y - either bank development, the net interest
  margin, or overhead costs
• X - matrix of explanatory variables from Survey
• Logit (P) a ßX
• 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

10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
(No Transcript)
18
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

19

• Policies may work differently in different
  political and institutional regimes
• Gerard Caprio, Williams College

20
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, Asli 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/Publi
  cation/Forthcoming/Forth_3RL_Supervision20Corrupt
  ion20Lending.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?tsfsg1817391646f8e9538cc7fbeaa2
  c53f48
• Photos sources http//www.123rf.com/ Stock
  Photography and Stock Footage www.fotosearch.com/c
  omstock/small-business/CSK198/ - 116k