Comments for

1
Comments forMeasuring Bank Regulation and
SupervisionSession 1 The Data

• Workshop Sponsored by World Bank DECRG-FP
• October 26, 2007
• Washington, DC
• Daniel E. Nolle
• Senior Financial Economist
• Office of the Comptroller of the Currency
• daniel.nolle_at_occ.treas.gov
• The opinions expressed are the authors alone,
  and are not to be taken as representing those of
  the Office of the Comptroller of the Currency or
  the U.S. Treasury Department.

2
Main Points

• The World Bank data uses in a supervisory
  environment.
• The World Bank data as reference or baseline.
• The World Bank data additional considerations.

3
1 Uses of the WB Data in aSupervisory
Environment

• Supervisory policy information base.
• Bank-specific information, domestic and foreign
  operations.
• Lines of communication between countries
  supervisory authorities.
• Financially developed countries.
• Some uses of the WB data
• Regulatory and supervisory differences important
  Basel II.
• Reinventing the wheel vs. learning from
  experience of others - Regulatory restructuring.

4
2 The World Bank Data as Reference or Baseline

• WB data provides a baseline
• complementing other cross-country data (economic
  systems, legal systems, etc.)
• against which to gauge other cross-country
  financial system data.
• New example WTO information on banking system
  openness.

5
World Bank Data and WTO Data

• Are Countries Fulfilling Their WTO Commitments
  on Foreign Bank Entry? A Cross-Country Analysis
  of Openness and Discrimination, Barth,
  Marchetti, Nolle, and Sawangngoenyuang (Sept.
  2007- draft).
• Compare WTO Commitments vs. WB Reported
  Practices across 9 dimensions of openness to
  bank entry and operation.
• 123 countries total in each half of our data.
• Dimension-by-dimension, country-by-country info
  provided.
• Also possible to construct overall index of
  openness assign values to particular responses
  for each component, then weight each of the 9
  components.
• Index values range from 0 (very open) to 100
  (very closed).
• 65 countries 16 developed, 49 developing.

6
WTO Data of Interest by Itself

• Country-by-country attributes and index values.
• Mean value of WTO Commitments index
• Developed Countries 15.8
• Developing Countries 38.8
• Developing countries are more restrictive under
  WTO than developed countries (means are
  statistically significantly different).

7
Main focus possible with WB-type data as
referenceHow do countries WTO postures compare
toactual practices they report to the WB?

• Mean WB data index values for groups
• Developed countries 23.7
• Developing countries 27.2
• Not statistically significantly different.
• Degree of Discrepancy between the two indexes
  (WB index value minus WTO index value)
• Mean for Developed countries 7.8
  (statistically significant).
• Mean for Developing countries -11.6
  (statistically significant)

8
How do countries WTO commitmentspostures
compare to the actual practicesthey report to
the WB?

• Developing countries less open to foreign entry
  than developed countries --
• But MORE open in practice than their WTO
  commitments indicate.
• AND developed countries LESS open in practice
  than their WTO commitments indicate.

9
3 Possible Additional Considerations

• (Significant) sub-federal level banking
  regulation and supervision.
• Organizational structure of banking
• Is a bank holding company structure permitted?
• If so, is a BHC structure widely used?
• Countries differ in the breadth of supervisors
  responsibilities responsibilities can conflict
  w/one another
• Many prudential (safety and soundness).
• Some also conduct-of-business (e.g. consumer
  protection, investor protection, anti-money
  laundering).

10
Additional Considerations Measuring nature and
scope of supervision

• Regulation vs. Supervision
• Regulation rules and laws.
• Supervision oversight of banks compliance with
  regs.
• Model for main dimensions of supervisory
  process Pillar 2 of Basel II.
• Way of thinking vs. quantifiable check list of
  actions
• Enforcement inherent measurement difficulties.
• Catch the bad guys -- After an infraction.
• Cop-on-the-beat -- Deter infractions from
  taking place.