Who should supervise banks for the banking sector stability?

Anichul Hoque Khan and Hasnat Dewan

Applied Economics Letters, 2013, vol. 20, issue 17, 1531-1537

Abstract: We empirically examine by whom the commercial banks should be supervised for the stability of a banking sector. With a cross-sectional dataset from 78 countries and using a logit estimation model, we find that the probability of the instability of a country's banking sector reduces if the commercial banks are supervised exclusively by the country's central bank. This probability is even higher if the central bank can conduct its supervision in a less-corrupt institutional environment. Finally, by carrying out some counter-factual thought experiments, we confirm that banking supervision causes banking sector instability, not vice versa.

Date: 2013
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DOI: 10.1080/13504851.2013.829175

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