Do Bank Regulation, Supervision and Monitoring Enhance or Impede Bank Efficiency?

Abstract

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. .

Bank Regulations and Income Inequality: Empirical Evidence

“…Bank regulations and associated reforms aim at enhancing the creditworthiness of banks and at improving the stability of the financial sector. Several studies over the last decade show that regulations do matter in shaping bank risk (e.g., Laeven and Levine, 2009;Agoraki, Delis, and Pasiouras, 2011), bank efficiency (Barth, Lin, Ma, Seade, and Song, 2010), and the probability of banking crises (e.g., Barth, Caprio, and Levine, 2008 That said, three clear suggestions emerge from this paper and are consistent with Beck, Levine, and Levkov (2010). : First, liberalizing banking markets, primarily via efficient banking supervision and abolishing credit controls, helps the poor get easier access to credit.…”

The Role of Regulatory Arbitrage in U.S. Banks' International Lending Flows: Bank-Level Evidence

“…For instance, Laeven and Levine (2009) find that the relationship between bank risk and regulations depend on the ownership and corporate governance structure of the bank. In return, regulations affect banks' balance sheet: Barth et al (2013) find that restrictions on bank activities reduce bank efficiency, while transparency, monitoring and capital requirements make banks more efficient. Regulations affect the risks of high-risk banks, but not low-risk banks in OECD countries (Klomp and de Haan, 2013), and banks operating in countries with greater unification of supervisory authorities are less profit efficient (Gaganis and Pasiouras, 2013).…”

A quantile regression approach to bank efficiency measurement*

“…Despite the bank heterogeneity , it is not uncommon for the recent bank efficiency literature to use such large international datasets (e.g. Lensink et al, 2008;Barth et al, 2010), making our setting ideal for testing the usefulness of a quantile approach. As discussed in the next section, to reveal potential differences across different levels of development, we combine information from the There is a debate in the literature as for the selection of inputs and outputs, and in particular as for the appropriate treatment of deposits (Berger and Humphrey, 1997).…”