Bank Supervision and Corruption in Lending

Thorsten Beck (), Asli Demirguc-Kunt and Ross Levine ()

No 11498, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Which commercial bank supervisory policies ease
or intensify
the degree to which bank corruption is an obstacle to firms raising external finance? Based on new data from more than 2,500 firms across 37 countries, this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms%u2019 financing obstacles. We find that the traditional approach to bank supervision, which involves empowering official supervisory agencies to directly monitor, discipline, and influence banks, does not improve the integrity of bank lending. Rather, we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance. In extensions, we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions.

JEL-codes: G3 G28 L51 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-fin, nep-fmk and nep-reg
Date: 2005-08
Note: IFM
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Journal Article: Bank supervision and corruption in lending (2006)
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