THE NUMBER OF FINANCIAL REGULATORY AUTHORITIES AND FINANCIAL STABILITY: CROSS-COUNTRY EXPERIENCES
Keywords:
Supervisory Regimes, Financial Sectors, Financial Stability
Abstract
This paper attempts to provide evidence whether or not the unification of regulatory institutions for different types of financial sector creates challenges for financial stability. From a sample of 91 countries that provide data on the financial unification index and the central bank involvement index, the empirical results reveal that higher financial unification index or the convergence toward a single supervisory institution outside the central bank, in order to control three different sectors (banking, insurance, and securities), is detrimental for financial stability. However, this finding only holds for developed countries, but dissapears for less developed countries. In parallel, the central bank involvement in financial sector supervision has no impact on financial stability in both developed and less developed countries.Downloads
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References
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Paroush, J., 1988. The domino effect and the supervision of the banking system. The Journal of Finance 43, no. 5 (1988): 1207-1218.
Peek, J., Rosengren, E., Tootell, G., 1998. Does the Federal Reserve Have an Informational Advantage? You Can Bank on It, Federal Reserve Bank of Boston Working Paper, no. 98-2.
Schaeck, K., Cihak, M., Wolfe, S., 2009. Are more competitive banking systems more stable? Journal of Money, Credit and Banking41 (4), 711–734.
Schinasi, G. J., 2005.Preserving Financial Stability.Economic Issues, 36, International Monetary Fund, Washington DC.
Shen, C.H., 2006. Determinants of the Financial Supervision System. Global Evidence, Banks and Bank Systems Volume 1, Issue 2.
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Turk Ariss, R., 2010. On the implications of market power in banking: Evidence from developing countries. Journal of Banking & Finance, 34(4), 765-775.
Uhde, A., Heimeshoff, U., 2009. Consolidation in banking and financial stability in Europe: empirical evidence. Journal of Banking and Finance 33, 1299–1311
Wymeersch, E., 2006. The structure of financial supervision in Europe: About single, twin peaks and multiple financial supervisors. European Business Organization Law Review, 8, 237–306
Arnone, M. and Gambini,A., 2006.Architectures of Supervisory Authorities and Banking Supervision.In Masciandaro, D., Quintyn, M. (Eds), Designing Financial Supervision Institutions: Independence, Accountability and Governance, Edward Elgar, Cheltenham.
Bagehot, W., 1878. Lombard Street: a description of the money market. C. Kegan Paul.
Barth, J.R., Dopico, L.G., Nolle, D.E., Wilcox, J.A., 2002. Bank safety and soundness and the structure of bank supervision: a cross-country analysis. International Review of Finance 3,
163–188.
Barth, J.R., Nolle, D.E., Phumiwasana, T., Yago, G., 2003.A cross-country analysis of the bank supervisory framework and bank performance. Financial Markets, Institutions & Instruments 12, 67–120.
Beck, T., De Jonghe, O., &Schepens, G., 2012. Bank competition and stability: cross-country heterogeneity. Journal of Financial Intermediation.
Blinder, A., 2010.How central should the central bank be. Journal of Economic Literature 48 (1), 123–133.
Boyd, J. H., Levine, R., and Smith, B. D., 2001. The impact of inflation on financial sector performance. Journal of Monetary Economics 47, no. 2 (2001): 221-248.
Boyer, P.C., Ponce, J., 2011.Central banks and banking supervision reform. In: Eijffin-ger, S., Masciandaro, D. (Eds.), The Handbook of Central Banking, Financial Regulation and Supervision after the Crisis. Edward Elgar, Cheltenham.
Boyer, P.C., Ponce, J., 2012.Regulatory capture and banking supervision reform. Journal of Financial Stability 8 (3), 206–217.
Čihák, M. and Podpiera, R., 2006. Is One Watchdog Better than Three? International Experience with Integrated Financial Sector Supervision.IMF WP/06/57.
Čihák, M. and Podpiera, R., 2008.Integrated financial supervision: Which model?. The North American Journal of Economics and Finance 19, no. 2 (2008): 135-152.
Cukierman, A., 2011.Reflections on the crisis and on its lessons for regulatory reform and for central bank policies. Journal of Financial Stability 7, 26-37.
DallaPellegrina, L., Masciandaro, D., Pansini, R.V., 2012. Do exchange rate regimes affect the role of central banks as banking supervisors? European Journal of Law and Economics, 1–37.
De Nicolo, G., Bartholomew, P. Zaman, J., Zephirin, M., 2004. Bank Consolidation, Internalization, and Conglomerization: Trends and Implications for Financial Risk. Financial Markets, Institutions and Instruments 13:4, 173-217.
Demaestri, E., Guerrero, F., 2005. Financial supervision: integrated or specialized? The case of Latin America and the Caribbean. Financial Markets, Institutions & Instruments 14, 43–106.
Eichengreen, B., Dincer, N., 2011. Who Should Supervise? The Structure of Bank Supervision and the Performance of the Financial System.NBER Working Paper Series, no. 17401.
Gaganis, C., and Pasiouras, F., 2013.Financial supervision regimes and bank efficiency: International evidence. Journal of Banking & Finance (forthcoming).
Goldstein, M., Kaminsky, G.L. and Reinhart, C.M. , 2000. Assessing Financial Vulnerability: An Early Warning System for Emerging Markets, Institute for International Economics.
Kremers, J., Schoenmaker, D., &Wierts, P., 2003. Cross-Sector Supervision: Which Model? Brookings-Wharton Papers on Financial Services, pp. 225–243.
Lamfalussy, A., 2011. Keynote Speech, The Future of Central Banking under Post – Crisis Mandates, Ninth BIS Annual Conference. BIS Papers, Bank for International Settlements, no. 55, 6–12.
Llewellyn, D., 2006.“Integrated Agencies and the Role of Central Banks” in Handbook of Central Banking and Financial Authorities in Europe, Edward Elgar, ed. by D. Masciandaro
Masciandaro, D., 2006. E pluribus unum? Authorities design in financial supervision: Trends and determinants. Open Economies Review 17, 73–102.
Masciandaro, D., 2007. Divide etimpera: financial supervision unification and the central bank fragmentation effect. European Journal of Political Economy 23, 285–315.
Masciandaro, D., 2009. Politicians and financial supervision unification outside the central bank: why do they do it? Journal of Financial Stability 5 (2), 124–146.
Masciandaro, D., Quintyn, M., 2008. Helping hand or grabbing hand? Supervision architecture, financial structure and market view. The North American Journal of Economics and Finance 19 (2), 153–173.
Masciandaro, D., Quintyn, M., Taylor, M., 2008. Inside and outside the central bank: Independence and accountability in financial supervision. Trends and determinants. European Journal of Political Economy 24, 833–848.
Masciandaro, D., Quintyn, M., 2009. Reforming Financial Supervision and the Role of the Central Banks: a Review of Global Trends, Causes and Effects (1998–2008). CEPR Policy Insight, Centre for Economic Policy Research, no. 30, 1–11.
Masciandaro, D., Pansini R.V., Quintyn, M., 2011.The Economic Crisis: Did Financial Supervision Matter? IMF Working Paper Series, Washington, International Monetary Fund, no. 261.
Masciandaro, D., Pansini, R. V., and Quintyn, M.,2012.The Economic Crisis: Did Supervision Architecture and Governance Matter?.Journal of Financial Stability (2012).
Papademos, L., 2010. Central bank mandates and governance arrangements. In: The Future of Central Banking under Post-crisis Mandates, Ninth BIS Annual Conference. BIS Papers, Bank for International Settlements, no. 55: 25–29.
Paroush, J., 1988. The domino effect and the supervision of the banking system. The Journal of Finance 43, no. 5 (1988): 1207-1218.
Peek, J., Rosengren, E., Tootell, G., 1998. Does the Federal Reserve Have an Informational Advantage? You Can Bank on It, Federal Reserve Bank of Boston Working Paper, no. 98-2.
Schaeck, K., Cihak, M., Wolfe, S., 2009. Are more competitive banking systems more stable? Journal of Money, Credit and Banking41 (4), 711–734.
Schinasi, G. J., 2005.Preserving Financial Stability.Economic Issues, 36, International Monetary Fund, Washington DC.
Shen, C.H., 2006. Determinants of the Financial Supervision System. Global Evidence, Banks and Bank Systems Volume 1, Issue 2.
Singala, S., and Mukul G. A., 2008.Financial Stability in Asian Economies. Economic and Political Weekly (2008): 65-71.
Soedarmono, W., 2011. Implications on Bank Risk and Financial Intermediation of Banking Reforms in Emergent Economies (Doctoral dissertation, Fordham University, New York).
Soedarmono, W., Machrouh, F. andTarazi, A., 2013.Bank competition, crisis and risk taking: Evidence from emerging markets in Asia. Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), 196-221.
Turk Ariss, R., 2010. On the implications of market power in banking: Evidence from developing countries. Journal of Banking & Finance, 34(4), 765-775.
Uhde, A., Heimeshoff, U., 2009. Consolidation in banking and financial stability in Europe: empirical evidence. Journal of Banking and Finance 33, 1299–1311
Wymeersch, E., 2006. The structure of financial supervision in Europe: About single, twin peaks and multiple financial supervisors. European Business Organization Law Review, 8, 237–306
Published
2014-12-22
How to Cite
Soedarmono, W., & Sitorus, R. (2014). THE NUMBER OF FINANCIAL REGULATORY AUTHORITIES AND FINANCIAL STABILITY: CROSS-COUNTRY EXPERIENCES. Buletin Ekonomi Moneter Dan Perbankan, 17(1), 129-145. https://doi.org/10.21098/bemp.v17i1.53
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
