This research could not have been completed without the help of Iffath Sharif and Cindy Lee, as well as financial support from the World Bank. Xin Chen provided extraordinary research assistance. We received helpful comments from

In this paper and the associated online database, we provide new data and measures of bank regulatory and supervisory policies in 180 countries from 1999 to 2011. The data include and the measures are based upon responses to hundreds of questions, including information on permissible bank activities, capital requirements, the powers of official supervisory agencies, information disclosure requirements, external governance mechanisms, deposit insurance, barriers to entry, and loan provisioning. The dataset also provides information on the organization of regulatory agencies and the size, structure, and performance of banking systems. Since the underlying surveys are large and complex, we construct summary indices of key bank regulatory and supervisory policies to facilitate crosscountry comparisons and analyses of changes in banking policies over time.

International consultants on bank regulation and currently regulated and supervised, and about bank supervision for developing countries often base their structures and deposit insurance schemes, for a broad advice on how their home country does things, for lack cross-section of countries. of information on practice in other countries. In addition to describing the data, Barth, Caprio, and Recommendations for reform have tended to be shaped Levine show how variables may be grouped and by bias rather than facts. aggregated. They also show some simple correlations To better inform advice about bank regulation and among selected variables. supervision and to lower the marginal cost of empirical In a companion paper ("Bank Regulation and research, Barth, Caprio, and Levine present and discuss a Supervision: What Works Best") studying the new and comprehensive database on the regulation and relationship between differences in bank regulation and supervision of banks in 107 countries. The data, based supervision and bank performance and stability, they on surveys sent to national bank regulatory and conclude that: supervisory authorities, are now available to researchers * Countries with policies that promote private and policymakers around the world. monitoring of banks have better bank performance and The data cover such aspects of banking as entry more stability. Countries with more generous deposit requirements, ownership restrictions, capital insurance schemes tend to have poorer bank requirements, activity restrictions, external auditing performance and more bank fragility. requirements, characteristics of deposit insurance * Diversification of income streams and loan schemes, loan classification and provisioning portfolios-by not restricting bank activities-also tends requirements, accounting and disclosure requirements, to improve performance and stability. (This works best troubled bank resolution actions, and (uniquely) the when an active securities market exists.) Countries in quality of supervisory personnel and their actions. which banks are encouraged to diversify their portfolios The database permits users to learn how banks are domestically and internationally suffer fewer crises.

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 privatesector 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.

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The recent global financial crisis has spurred renewed interest in identifying those reforms in bank regulation that would work best to promote bank development, performance and stability. Building upon three recent worldwide surveys on bank regulation (Barth et al., 2004, 2006, and 2008), we attempt to contribute to this assessment by examining whether bank regulation, supervision and monitoring enhance or impede bank operating efficiency. Based on an unbalanced panel analysis of more than 4,050 banks observations in 72 countries over the time period 1999-2007, we find that tighter restrictions on bank activities are negatively associated with bank efficiency while greater capital regulation stringency is marginally and positively associated with bank efficiency. In addition, we find that a strengthening of official supervisory power is positively associated with bank efficiency only in countries with independent supervisory authorities. Moreover, independence coupled with a more experienced supervisory authority tends to enhance bank efficiency. Finally, market-based monitoring of banks in terms of more financial transparency is positively associated with bank efficiency. .

The recent global financial crisis has spurred renewed interest in identifying those reforms in bank regulation that would work best to promote bank development, performance and stability. Building upon three recent worldwide surveys on bank regulation (Barth et al., 2004, 2006, and 2008), we attempt to contribute to this assessment by examining whether bank regulation, supervision and monitoring enhance or impede bank operating efficiency. Based on an unbalanced panel analysis of more than 4,050 banks observations in 72 countries over the time period 1999-2007, we find that tighter restrictions on bank activities are negatively associated with bank efficiency while greater capital regulation stringency is marginally and positively associated with bank efficiency. In addition, we find that a strengthening of official supervisory power is positively associated with bank efficiency only in countries with independent supervisory authorities. Moreover, independence coupled with a more experienced supervisory authority tends to enhance bank efficiency. Finally, market-based monitoring of banks in terms of more financial transparency is positively associated with bank efficiency. .

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