A Retrospective on Bank Regulation and Supervision Around the World James R. Barth Penny Prabha Auburn University and Milken Institute Milken Institute Capital Flows and Financial Liberalization Annual CEMP-CIEPS FORUM March 13, 2014 Arlington, Virginia 1
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A Retrospective on Bank Regulation and Supervision Around the World James R. Barth Penny Prabha Auburn University and Milken Institute Milken Institute.
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A Retrospective on Bank Regulation and Supervision
Around the World
James R. Barth Penny Prabha Auburn University and Milken Institute Milken Institute
Capital Flows and Financial Liberalization Annual CEMP-CIEPS FORUM
March 13, 2014Arlington, Virginia
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Motivation: More Frequent (and Severe) Banking Crises
Sources: Reinhart and Rogoff (2008), Milken Institute.
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Motivation: Frequency of Recent Banking Crises
1970 - 2011
Source: Laeven, Valencia (2012).
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Motivation: Cost of Banking Crises
2007 - 2011
Source: Laeven, Valencia (2012).
Country Start of crisisDate when systemic
Extensive liquidity support
Significant guarantees on
liabilities
Significant restructuring
costs
Significant asset
purchases
Significant nationalizatio
nsAustria 2008 2008 v v v vBelgium 2008 2008 v v v vDenmark 2008 2009 v v vGermany 2008 2009 v v vGreece 2008 2009 v v v Iceland 2008 2008 v v v vIreland 2008 2009 v v v v v
Kazakhstan 2008 2010 v v vLatvia 2008 2008 v v v
Luxembourg 2008 2008 v v v vMongolia 2008 2009 v v v v
Netherlands 2008 2008 v v v vNigeria 2009 2011 v v v v vSpain 2008 2011 v v v
Fed Chairman Ben Bernanke said, “stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.”
Measuring bank regulation and supervision around the world is hard.
Yet, as Lord Kelvin said, “[I]f you cannot measure it, you cannot improve it.”
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Countries Participating in the World Bank Surveys
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Countries and Questions in the World Bank Surveys
Survey I (1999): 118 countries and 180 questions Survey II (2003): 151 countries and 275 questions Survey III (2006): 143 countries and 300 questions Survey IV (2011): 143 countries and 270 questions Surveys I-IV: 84 countries
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Data and Indexes
The dataset includes information on: the organization of national banking authorities, the details of financial regulation and supervision, and the size and structure of the banking systems.
About 50 indexes of policies are constructed to measure: capital requirements, ownership restrictions, deposit insurance generosity, allowable activities, among other regulatory and supervisory policies.
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Aggregating the Data: the Art and Science of Forming
IndexesIndex Component
Bank activity regulations The degree to which national regulatory authorities allow banks to engage in securities, insurance, real estate activities
Financial conglomerate The extent to which banks may own and control non-financial firms
Competition regulation Whether foreign banks may own or compete with domestic banks
Capital regulation The extent of regulatory requirements regarding the amount of capital banks must hold and whether the source of funds that count
Official supervisory action Restructuring authority, insolvency declaration, forbearance
Official supervisory structure
The degree to which the supervisory authority is independent from political influence, political lobbying from banks