Traditional approaches to bank supervision may actually hurt bank development and lead to greater corruption in lending, according to new research by Brown University Professor of Economics Ross Levine. Based on new data from more than 2500 firms across 37 countries, Levine and his co-researchers put forth the first empirical assessment how different bank supervisory policies impact the obstacles the firms face in trying raise capital. Their results are published in the current issue of the Journal of Monetary Economics.
Currently, international organizations such as the Basel Committee, International Monetary Fund, and World Bank promote the development of powerful bank supervisory agencies with the authority to monitor and discipline banks. In fact, already more than 100 countries have stated intentions to implement the new Basel Capital Accord (Basel II) in the near future. Yet, according to Levine, there exists no evidence to support these recommendations, nor is there evidence on the general question of which bank supervisory policies facilitate efficient corporate finance.
“Banks matter. They matter for economic growth and for poverty alleviation. They influence who has economic opportunities, and who never gets the chance to fulfill his or her dreams,” Levine explained. “Unfortunately, much of the world is in the process of adopting the wrong banking policies.”
After assembling the first international database on banking policies, Levine and his co-authors assessed which policies promote sound banking around the world, judged in terms of stability, bank development, efficiency, corruption in lending, and corporate governance of banks. They compared countries that choose a hands-on approach, where the government owns much of the banking industry and creates a powerful supervisory agency that directly oversees banks, to countries that rely substantially less on direct government control and put greater emphasis on forcing banks to disclose accurate information to the public.
Their results support the following two conclusions:
- Powerful supervisory agencies with the authority to directly monitor and discipline banks do not improve bank operations; rather, powerful supervisory agencies tend to lower the integrity of bank lending.
- Bank supervisory strategies that focus on forcing accurate information disclosure and not distorting the incentives of private creditors to monitor banks enhance the efficiency of banks and reduce corruption in lending.
Based on this evidence, Levine says that 90 percent of the countries planning to implement Basel II regulations could face bad outcomes – including China, India, and Russia.
“This is not a laissez-faire finding,” the report concludes. “This result suggests that active bank supervision can help ease information costs and improve the integrity of bank lending. Just as clearly, however, the results highlight the importance of theories that emphasize political and regulatory capture and suggest that powerful supervisory agencies too frequently do not act in the best interests of society.”
Thorsten Beck and Asli Demirgüç-Kunt of World Bank collaborated with Levine on this research. World Bank funded the study.
Editors: Brown University has a fiber link television studio available for domestic and international live and taped interviews, and maintains an ISDN line for radio interviews. For more information, call (401) 863-2476.
Deborah Baum | EurekAlert!
Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik
Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)
Astronomers from Bonn and Tautenburg in Thuringia (Germany) used the 100-m radio telescope at Effelsberg to observe several galaxy clusters. At the edges of these large accumulations of dark matter, stellar systems (galaxies), hot gas, and charged particles, they found magnetic fields that are exceptionally ordered over distances of many million light years. This makes them the most extended magnetic fields in the universe known so far.
The results will be published on March 22 in the journal „Astronomy & Astrophysics“.
Galaxy clusters are the largest gravitationally bound structures in the universe. With a typical extent of about 10 million light years, i.e. 100 times the...
Researchers at the Goethe University Frankfurt, together with partners from the University of Tübingen in Germany and Queen Mary University as well as Francis Crick Institute from London (UK) have developed a novel technology to decipher the secret ubiquitin code.
Ubiquitin is a small protein that can be linked to other cellular proteins, thereby controlling and modulating their functions. The attachment occurs in many...
In the eternal search for next generation high-efficiency solar cells and LEDs, scientists at Los Alamos National Laboratory and their partners are creating...
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are less stable. Now researchers at the Technical University of Munich (TUM) have, for the first time ever, produced a composite material combining silicon nanosheets and a polymer that is both UV-resistant and easy to process. This brings the scientists a significant step closer to industrial applications like flexible displays and photosensors.
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are...
Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to simulate these confined natural conditions in artificial vesicles for the first time. As reported in the academic journal Small, the results are offering better insight into the development of nanoreactors and artificial organelles.
Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to...
20.03.2017 | Event News
14.03.2017 | Event News
07.03.2017 | Event News
24.03.2017 | Materials Sciences
24.03.2017 | Physics and Astronomy
24.03.2017 | Physics and Astronomy