Financial Stability and Central Bank Governance

Koetter, Michael; Roszbach, Kasper; Spagnolo, Giancarlo

doi:10.2139/ssrn.2334224

Cited by 11 publications

(15 citation statements)

References 31 publications

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“…In contrast with both studies, Koetter et al (2014) find no effect of a number of central bank supervision (as well as of a number of other central bank's institutional traits) on NPLs, suggesting that the policy discussion on the allocation of supervision might be misguided.…”

Section: Related Literaturecontrasting

confidence: 92%

“…Existing evidence, however, is mixed and provides no clear-cut answer on this relationship. This led some researchers to cast doubt on the presence of a link between supervisory governance and financial stability (Goodhart and Schoenmaker, 1995;Koetter et al, 2014). Nevertheless, most empirical works focused on the binary choice between a central bank or a separate agency as supervisor.…”

Section: Introductionmentioning

confidence: 99%

“…In doing so, it restricts the analysis of financial stability to nonperforming loans as a share of total loans (hereafter, NPLs). NPLs have the advantage of being comparable across countries for a relatively long time series and of being considered by both academics and policymakers a key indicator of excessive credit risk taken by the banking system, as argued by Koetter et al (2014). Moreover, NPLs is a measure that is more directly affected by supervision (Delis and Staikouras, 2011;Hirtle et al, 2019) and the quality of institutions in a country (Aiyar et al, 2015) than other proxies for financial stability, such as the occurrence of systemic banking crises, which might have an exogenous source.…”

Section: Introductionmentioning

confidence: 99%

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Supervisory Governance, Capture and Non‑Performing Loans

Fraccaroli¹

2019

SSRN Journal

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Scholars have long believed the governance of banking supervision to affect financial stability. Although the literature has identified at length the pros and cons of having either a central bank or a separate agency responsible for microprudential banking supervision, the advantages of having this task shared by both institutions (shared supervision) have received considerably less attention. This paper fills this void by comparing the impact of three supervisory governance models-supervision by the central bank, by an agency or by both of them-on bank non-performing loans. Using a new database on supervisory governance in 116 countries from 1970 to 2016, it finds that supervisory governance per se does not significantly affect non-performing loans. However, it also finds that, where the risk of capture is high, shared supervision is associated with a significant reduction in non-performing loans. This is in line with the supervisory capture theory, whereby it is more costly to capture two supervisors rather than one. Overall, these results provide new evidence in support of the relevance of supervisory governance in hampering supervisory capture from the banking sector.

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Section: Related Literaturecontrasting

confidence: 92%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Supervisory Governance, Capture and Non‑Performing Loans

Fraccaroli¹

2019

SSRN Journal

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“…Merrouche and Nier (2010) found that the buildup of banking imbalances (measured by the ratio of loans to deposits) was less severe where the CB had full control of supervision and regulation. However, Koetter, at al. (2014) finds no improvement in the credit risk or non-performing loan ratio at banks when the CB is also the PR in 44 countries.…”

Section: Ability To Implement Macroprudential Policiesmentioning

confidence: 99%

New Financial Stability Governance Structures and Central Banks

Edge

Liang

2019

FEDS

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We evaluate the institutional frameworks developed to implement time-varying macroprudential policies in 58 countries. We focus on new financial stability committees (FSCs) that have grown dramatically in number since the global financial crisis, and their interaction with central banks, and infer countries' revealed preferences for effectiveness versus political economy considerations. Using cluster analysis, we find that only one-quarter of FSCs have both good processes and good tools to implement macroprudential actions, and that instead most FSCs have been designed to improve communication and coordination among existing regulators. We also find that central banks are not especially able to take macroprudential actions when FSCs are not set up to do so. We conclude that about one-half of the countries do not have structures to take or direct actions and avoid risks of policy inertia. Rather countries' decisions appear to be consistent with strengthening the political legitimacy of macroprudential policies with prominent roles for the ministry of finance and avoiding placing additional powers in central banks that already are strong in microprudential supervision and have high political independence for monetary policy. The evidence suggests that countries are placing a relatively low weight on the ability of policy institutions to take action and a high weight on political economy considerations in developing their financial stability governance structures.

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“…For example, the CBs in Iceland, Luxembourg, Sweden, and the U.K. provide analysis or consult with the authority for setting the CCyB and thus can have an influence even if it does not have the authority itself to set the CCyB. 7 See Nier, Osinski, Jacome, and Madrid (2011),Goodhart and Schoenmaker (1995), andMerrouche and Nier (2010) as examples of papers that find that the CB being the PR leads to better banking-sector outcomes andKoetter, Roszbach, and Spagnolo (2014) as an example of a paper that does not find this result.…”

mentioning

confidence: 99%