Central Bankers as Supervisors: Do Crises Matter?

Abstract

Following the 2007-09 Global Financial Crisis many countries have changed their financial supervisory architecture by increasing the involvement of central banks in supervision. This has led many scholars to argue that financial crises are an important driver in explaining the evolution of the role of central banks as supervisors. We formally test this hypothesis employing a new database that captures the full set of supervisory reforms implemented during the period 1996-2013 in a large sample of countries. Our findings support the view that systemic banking crises are important drivers of reforms in supervisory structure. However, we also highlight an equally important peer effect, namely a tendency of countries to reform their financial supervisory architecture when others do so as well. We construct several measures of spatial spillover effects and show that they can explain institutional similarities among countries and impact the probability of reforming the role of the central bank in financial sector supervision.

Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations

“…We follow Demirgüç-Kunt and Detragiache 2002and Houston et al (2012), who interpret trends in banking policies as a potential source of exogenous variation in a specific country's banking regulations manifested through a "regulation contagion" channel. We further refine this idea with findings from Abiad and Mody (2005), Persson and Tabellini (2009), Buera, Monge-Naranjo, and Primiceri (2011), and Masciandaro and Romelli (2018), who emphasize the influence of neighboring countries over a country's institutional environment through spillover effects. For each country, we use the median of neighboring countries' REGULATION & SUPERVISION as an instrumental variable for the country's regulatory environment.…”

Global Financial Development Report 2019/2020: Bank Regulation and Supervision a Decade after the Global Financial Crisis

“…5 Overall, countries in the same region tend to follow the same Basel regime. This pattern is in line with evidence from 102 countries indicating that a country is more likely to implement reforms in financial sector supervision if nearby countries also undertake such reforms (Masciandaro and Romelli 2018).…”

Supervisory Governance, Capture and Non‑Performing Loans

“…In 2016, the last year in our database, 66% of the countries in the sample had a central bank as the only supervisor, 21% an agency and the remaining 13% shared supervision. As the map of While previous works provided some explanations for the drivers of this heterogeneity (Melecky and Podpiera, 2013;Masciandaro and Romelli, 2018), the aim of this work is to study the relationship between these three supervisory models and NPLs. As described, most works focus on the impact of having either a central bank or an agency on financial stability.…”

“…Their focus is in fact more on the ownership of supervisory information rather than interinstitutional cooperation.5 It is worth mentioning a fourth set of papers which distinguish supervisory governance based on the degree of concentration of supervisory authorities(Melecky andPodpiera, 2013 andRomelli, 2018); these works, however, explore the determinants of supervisory governance, rather than its impact, and extend the analysis also to the supervision of insurances and securities, and not only of the banking sector.6 The World Bank's Bank Regulation and Supervision Survey (BSSR), which surveyed regulatory and supervisory agencies, provides relevant examples to support this argument. This is particularly visible for those…”

“…Moreover, while in the latter the survey corresponds to a single year, in the former the four rounds of surveys present different sample sizes, as some supervising authorities did not respond in certain years, not allowing to capture the time variation. Other examples areRutkowski and Schnabel (2016), who focus on the degree of cooperation between supervisors, considering full integration when the supervisor is only one, andMasciandaro and Romelli (2018), who construct an Herfindhal-Hirschman index to compute the concentration of banking, insurances and securities supervisors in a specific country.14 While common patterns of reforms in supervisory governance can be found in Scandinavia and in many Latin American countries, where supervision tended to be assigned to a supervising agency, Europe, Asia and Latin America are quite heterogeneous.…”