Does regulatory and supervisory independence affect financial stability?
Nicolò Fraccaroli (),
Rhiannon Sowerbutts and
Andrew Whitworth ()
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Nicolò Fraccaroli: W.R. Rhodes Center for International Economics and Finance at the Watson Institute for International and Public Affairs, Brown University
Andrew Whitworth: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 893, Bank of England working papers from Bank of England
Since the crisis financial regulators and supervisors have been given increased independence from political bodies. But there is no clear evidence of the benefits of these reforms on the stability of the banking sector. This paper fills that void, introducing a new dataset of reforms to regulatory and supervisory independence for 43 countries from 1999-2019. We combine this index with bank-level data to investigate the impact of reforms in independence on financial stability. We find that reforms that bring greater regulatory and supervisory independence are associated with lower non-performing loans in banks’ balance sheets. In addition, we provide evidence that these improvements do not come at the cost of bank efficiency and profitability. Overall, our results show that increasing the independence of regulators and supervisors is beneficial for financial stability.
Keywords: Agency independence; financial stability; banking supervision; banking regulation; regulatory agencies (search for similar items in EconPapers)
JEL-codes: E58 G28 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0893
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