Rethinking Bank Regulation: Till Angels Govern

446 Pages·2006·1.95 MB·English

by  Barth J.R.

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RethinkingBankRegulation
Bankingsystemsareimportantnotonlyforcountries’financesbutalsotohelp
spureconomicgrowth.Thisvolumepresentsanddiscussesanewdatabaseon
bankregulationinmorethan150countries.Itoffersthefirstcomprehensive
cross-countryassessmentoftheimpactofbankregulationontheoperationof
banksandassessesthevalidityoftheBaselCommittee’sinfluentialapproach
to bank regulation. A key finding is that societies that emphasize market-
basedmonitoringofbanksenjoysuperioroutcomesalongarangeofcriteria.
Viewingthereformofbankregulationandsupervisionasanarrowtechni-
cal issue is risky because the impact of bank regulation reflects host coun-
tries’complexeconomicandpoliticalinstitutions.Thedataalsoindicatethat
restrictionsontheentryofnewbanks,governmentownershipofbanks,and
restrictionsonbankactivitiesadverselyaffectbankingsystemperformance.
JamesR.BarthistheLowderEminentScholarinFinanceatAuburnUni-
versity and a Senior Finance Fellow at the Milken Institute. He also has
been Professor of Economics at George Washington University, Associate
DirectoroftheeconomicsprogramattheNationalScienceFoundation,and
Shaw Foundation Professor of Banking and Finance at Nanyang Techno-
logical University. Professor Barth was an appointee of Presidents Ronald
ReaganandGeorgeH.W.BushasChiefEconomistoftheOfficeofThrift
SupervisionandpreviouslyasChiefEconomistoftheFederalHomeLoan
BankBoard.Hisresearchfocusesonfinancialinstitutionsandcapitalmar-
kets,bothdomesticandglobal,withspecialemphasisonregulatoryissues.
GerardCaprio,Jr.,isProfessorofEconomicsatWilliamsCollegeand,until
January 2006, the Director for Policy in the Financial Sector Vice Presi-
dencyoftheWorldBank.HepreviouslyservedasManager,FinancialSector
Research,intheBank’sDevelopmentResearchGroupandwasthesenior
Bank spokesperson on financial sector issues. Before joining the Bank in
1988,ProfessorCapriowasVicePresidentandHeadofGlobalEconomicsat
JPMorgan,previouslyservingasaneconomistattheFederalReserveBoard
andtheIMFandalsoteachingatGeorgeWashingtonUniversity.Hiscurrent
researchexploresthelinksbetweenfinancialsectorregulationandsupervi-
sionandtheperformanceoffinancialinstitutions,aswellasfinancialcrises.
Ross Levine is the Harrison S. Kravis University Professor and Professor
of Economics at Brown University. He is also a Research Associate at the
National Bureau of Economic Research and the Dupee Faculty Fellow at
the Watson Institute of International Affairs. After receiving his Ph.D. in
economicsandworkingattheBoardofGovernorsoftheFederalReserve
System,ProfessorLevinemovedtotheWorldBank.Thereheparticipated
in and managed a number of research and operational programs. In 1997
Professor Levine joined the University of Virginia, before moving to the
financedepartmentoftheCarlsonSchoolofManagementattheUniversity
ofMinnesotain1999.Hisworkfocusesonthelinksbetweenfinancialsector
policies,theoperationoffinancialsystems,andeconomicgrowth.
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Rethinking Bank Regulation
Till Angels Govern
JAMES R. BARTH
AuburnUniversityandMilkenInstitute
GERARD CAPRIO, JR.
WilliamsCollege
ROSS LEVINE
BrownUniversity
iii
cambridge university press
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo
Cambridge University Press
TheEdinburghBuilding,Cambridgecb22ru,UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridg e.org /9780521855761
©JamesR.Barth,GerardCaprio,Jr.,andRossLevine2006
This publication is in copyright. Subject to statutory exception and to the provision of
relevant collective licensing agreements, no reproduction of any part may take place
without the written permission of Cambridge University Press.
First published in print format 2005
isbn-13 978-0-511-13760-0eBook (NetLibrary)
isbn-10 0-511-13760-5 eBook (NetLibrary)
isbn-13 978-0-521-85576-1hardback
isbn-10 0-521-85576-4 hardback
Cambridge University Press has no responsibility for the persistence or accuracy of urls
forexternalorthird-partyinternetwebsitesreferredtointhispublication,anddoesnot
guaranteethatanycontentonsuchwebsitesis,orwillremain,accurateorappropriate.
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ForMary,Jeanne,andMaruja
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Contents
ListofFigures,Tables,andAppendices page ix
Preface xiii
1. Introduction 1
1.A. Motivation 1
1.B. ObjectivesandContributions 3
1.C. KeyFindings:ABriefSynopsis 10
1.D. GuidetotheBook 16
2. ContrastingApproachestoBankRegulation 18
2.A. TwoApproachestoBankRegulation 21
2.B. BankRegulation:ProsandCons 46
2.C. TheBaselCommitteeandRegulatoryConvergence 63
2.D. Conclusion 74
3. HowAreBanksRegulatedandSupervisedAroundtheWorld? 75
3.A. Overview 75
3.B. Structure,Scope,andIndependenceofRegulationand
Supervision 83
3.C. WhatIsa“Bank”? 102
3.D. EntryintoBanking,CapitalRequirements,and
SupervisoryPowers 110
3.E. ExplicitDepositInsuranceSchemes 132
3.F. PrivateMonitoringandExternalGovernance 136
3.G. DoesBankOwnershipTypeAffecttheChoiceof
RegulationsandSupervisoryPractices? 148
3.H. ForcesforGreaterHarmonizationofRegulationand
SupervisionamongCountries 161
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viii Contents
4. WhatWorksBest? 178
4.A. GoalsandBoundaries 178
4.B. BankRegulationandSupervisionandBank
Development 185
4.C. BankSupervision,Regulation,andStability 213
4.D. BankSupervision,Regulation,andBankEfficiency 224
4.E. BankSupervision,Regulation,andBankLending 235
4.F. Supervision,Regulation,andBankGovernance 245
4.G. SummaryofResults 252
5. ChoosingBankRegulations 258
5.A. RecapandMotivation 258
5.B. MotivatingExample:MexicoandtheUnitedStates 262
5.C. ConceptualFramework 270
5.D. EmpiricalFrameworkandData 286
5.E. SummaryRemarks 306
6. RethinkingBankRegulation 307
6.A. ApproachandContext 307
6.B. LessonsandImplications 309
Appendices 317
References 379
Index 405