Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Bank Supervision May Actually Drive Corruption

14.02.2007
Traditional approaches to bank supervision may not be in the best interest of society, according to new research by a Brown University economist. In the first empirical assessment of the impact of international banking policies, Ross Levine, professor of economics, found that for most countries, regulations such as Basel II could actually hurt bank development and lead to greater corruption. The results are published in the Journal of Monetary Economics.

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!
Further information:
http://www.Brown.edu

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Highly precise wiring in the Cerebral Cortex

Our brains house extremely complex neuronal circuits, whose detailed structures are still largely unknown. This is especially true for the so-called cerebral cortex of mammals, where among other things vision, thoughts or spatial orientation are being computed. Here the rules by which nerve cells are connected to each other are only partly understood. A team of scientists around Moritz Helmstaedter at the Frankfiurt Max Planck Institute for Brain Research and Helene Schmidt (Humboldt University in Berlin) have now discovered a surprisingly precise nerve cell connectivity pattern in the part of the cerebral cortex that is responsible for orienting the individual animal or human in space.

The researchers report online in Nature (Schmidt et al., 2017. Axonal synapse sorting in medial entorhinal cortex, DOI: 10.1038/nature24005) that synapses in...

Im Focus: Tiny lasers from a gallery of whispers

New technique promises tunable laser devices

Whispering gallery mode (WGM) resonators are used to make tiny micro-lasers, sensors, switches, routers and other devices. These tiny structures rely on a...

Im Focus: Ultrafast snapshots of relaxing electrons in solids

Using ultrafast flashes of laser and x-ray radiation, scientists at the Max Planck Institute of Quantum Optics (Garching, Germany) took snapshots of the briefest electron motion inside a solid material to date. The electron motion lasted only 750 billionths of the billionth of a second before it fainted, setting a new record of human capability to capture ultrafast processes inside solids!

When x-rays shine onto solid materials or large molecules, an electron is pushed away from its original place near the nucleus of the atom, leaving a hole...

Im Focus: Quantum Sensors Decipher Magnetic Ordering in a New Semiconducting Material

For the first time, physicists have successfully imaged spiral magnetic ordering in a multiferroic material. These materials are considered highly promising candidates for future data storage media. The researchers were able to prove their findings using unique quantum sensors that were developed at Basel University and that can analyze electromagnetic fields on the nanometer scale. The results – obtained by scientists from the University of Basel’s Department of Physics, the Swiss Nanoscience Institute, the University of Montpellier and several laboratories from University Paris-Saclay – were recently published in the journal Nature.

Multiferroics are materials that simultaneously react to electric and magnetic fields. These two properties are rarely found together, and their combined...

Im Focus: Fast, convenient & standardized: New lab innovation for automated tissue engineering & drug

MBM ScienceBridge GmbH successfully negotiated a license agreement between University Medical Center Göttingen (UMG) and the biotech company Tissue Systems Holding GmbH about commercial use of a multi-well tissue plate for automated and reliable tissue engineering & drug testing.

MBM ScienceBridge GmbH successfully negotiated a license agreement between University Medical Center Göttingen (UMG) and the biotech company Tissue Systems...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

“Lasers in Composites Symposium” in Aachen – from Science to Application

19.09.2017 | Event News

I-ESA 2018 – Call for Papers

12.09.2017 | Event News

EMBO at Basel Life, a new conference on current and emerging life science research

06.09.2017 | Event News

 
Latest News

Comet or asteroid? Hubble discovers that a unique object is a binary

21.09.2017 | Physics and Astronomy

Cnidarians remotely control bacteria

21.09.2017 | Life Sciences

Monitoring the heart's mitochondria to predict cardiac arrest?

21.09.2017 | Health and Medicine

VideoLinks
B2B-VideoLinks
More VideoLinks >>>