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The Empirics of Banking Regulation

Fulbert Tchana Tchana

MPRA Paper from University Library of Munich, Germany

Abstract: This paper assesses empirically whether banking regulation is effective at preventing banking crises. We use a monthly index of banking system fragility, which captures almost every source of risk in the banking system, to estimate the effect of regulatory measures (entry restriction, reserve requirement, deposit insurance, and capital adequacy requirement) on banking stability in the context of a Markov-switching model. We apply this method to the Indonesian banking system, which has been subject to several regulatory changes over the last couple of decades, and at the same time, has experienced a severe systemic crisis. We draw from this research the following findings: (i) entry restriction reduces crisis duration and also the probability of their occurrence; (ii) larger reserve requirements reduce crisis duration, but increase banking instability; (iii) deposit insurance increases banking system stability and reduces crisis duration. (vi) capital adequacy requirement improves stability and reduces the expected duration of banking crises.

Keywords: Banking Crises; Banking System Fragility Index; Banking Regulation; Markov Switching Regression (search for similar items in EconPapers)
JEL-codes: C25 G21 G28 (search for similar items in EconPapers)
Date: 2008-06-15
New Economics Papers: this item is included in nep-ban, nep-reg, nep-rmg and nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The empirics of banking regulation (2014) Downloads
Working Paper: The Empirics of Banking Regulation (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9299

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