Bank Regulation and Supervision: What Works Best?

James Barth, Gerard Caprio and Ross Levine ()

No 9323, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses our new database on bank regulation and supervision in 107 countries to assess the relationship between specific regulatory and supervisory practices and banking-sector development, efficiency, and fragility. The paper examines: (i) regulatory restrictions on bank activities and the mixing of banking and commerce; (ii) regulations on domestic and foreign bank entry; (iii) regulations on capital adequacy; (iv) deposit insurance system design features; (v) supervisory power, independence, and resources, (vi) loan classification stringency, provisioning standards, and diversification guidelines; (vii) regulations fostering information disclosure and private-sector monitoring of banks; and (viii) government ownership. The results, albeit tentative, raise a cautionary flag regarding government policies that rely excessively on direct government supervision and regulation of bank activities. The findings instead suggest that policies that rely on guidelines that (1) force accurate information disclosure, (2) empower private-sector corporate control of banks, and (3) foster incentives for private agents to exert corporate control work best to promote bank development, performance and stability.

JEL-codes: G21 G38 (search for similar items in EconPapers)
Date: 2002-11
New Economics Papers: this item is included in nep-cba, nep-com, nep-fin and nep-rmg
Note: CF IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

Published as Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.

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