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!
Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
The formation of stars in distant galaxies is still largely unexplored. For the first time, astron-omers at the University of Geneva have now been able to closely observe a star system six billion light-years away. In doing so, they are confirming earlier simulations made by the University of Zurich. One special effect is made possible by the multiple reflections of images that run through the cosmos like a snake.
Today, astronomers have a pretty accurate idea of how stars were formed in the recent cosmic past. But do these laws also apply to older galaxies? For around a...
Just because someone is smart and well-motivated doesn't mean he or she can learn the visual skills needed to excel at tasks like matching fingerprints, interpreting medical X-rays, keeping track of aircraft on radar displays or forensic face matching.
That is the implication of a new study which shows for the first time that there is a broad range of differences in people's visual ability and that these...
Computer Tomography (CT) is a standard procedure in hospitals, but so far, the technology has not been suitable for imaging extremely small objects. In PNAS, a team from the Technical University of Munich (TUM) describes a Nano-CT device that creates three-dimensional x-ray images at resolutions up to 100 nanometers. The first test application: Together with colleagues from the University of Kassel and Helmholtz-Zentrum Geesthacht the researchers analyzed the locomotory system of a velvet worm.
During a CT analysis, the object under investigation is x-rayed and a detector measures the respective amount of radiation absorbed from various angles....
The quantum world is fragile; error correction codes are needed to protect the information stored in a quantum object from the deteriorating effects of noise. Quantum physicists in Innsbruck have developed a protocol to pass quantum information between differently encoded building blocks of a future quantum computer, such as processors and memories. Scientists may use this protocol in the future to build a data bus for quantum computers. The researchers have published their work in the journal Nature Communications.
Future quantum computers will be able to solve problems where conventional computers fail today. We are still far away from any large-scale implementation,...
Pillared graphene would transfer heat better if the theoretical material had a few asymmetric junctions that caused wrinkles, according to Rice University...
15.11.2017 | Event News
15.11.2017 | Event News
30.10.2017 | Event News
17.11.2017 | Physics and Astronomy
17.11.2017 | Health and Medicine
17.11.2017 | Studies and Analyses