Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?

Noia, Carmine Di; Giorgio, Giorgio Di

doi:10.1111/1468-2362.00034

Cited by 83 publications

(16 citation statements)

References 8 publications

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“…It is recommended that banking supervision should be assigned to an agency formally separated from the central bank because the inflation rate is higher and more volatile in countries where the central bank acts as a monopolist regulator. Not all countries can afford deposit insurance, especially those with weak banks and regulators (Di Noia& Di Giorgio, 1999).…”

Section: Related Literaturementioning

confidence: 99%

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Gavalas¹,

Syriopoulos²

2014

JFBM

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In late 2010, the Basel Committee on Banking Supervision issued the Basel III document enumerating measures focused on improvements in the definition of regulatory capital, introduction of a leverage ratio as a backstop for risk-based capital requirement, capital buffers, enhancement of risk coverage through improvements in the methodology to measure counterparty credit risk and liquidity measurement standards. This study investigates the impact of the new capital requirements introduced under the Basel III framework on bank lending rates and loan growth. Higher capital requirements, by raising banks' marginal cost of funding, lead to higher lending rates. The data presented in the paper suggest that assuming a 1.3 percentage point increase in the equity-to-asset ratio to meet the Basel III regulations, the country-by-country estimations imply a reduction in the volume of loans by an average 4.97 percent in the long run for the banks in countries that experienced a crisis and by 18.67 percent for the banks in countries that did not experience a crisis. The wide variance in the results reflects crosscountry differences in the elasticity of loan demand with respect to loan interest rateand bank's net cost of raising equity.

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Section: Related Literaturementioning

confidence: 99%

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Gavalas¹,

Syriopoulos²

2014

JFBM

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“…There has been little empirical examination of these arguments for and against the central bank supervising banks, but that which does exist generally seems to support the benefits of a narrower focus for the central bank that does not include bank supervision. Using cross-country data, Schoenmaker (1995), andDi Noia andDi Giorgio (1999) find a positive correlation between the rate of inflation and the central bank having responsibility for both monetary policy and supervision. Goodhart and Schoenmaker (1995) point out that independent central banks, which are much better at fighting inflation, are also more likely not to have responsibility for banking supervision.…”

Section: Safety Soundness and Systemic Stabilitymentioning

confidence: 99%

A Cross‐Country Analysis of the Bank Supervisory Framework and Bank Performance

Barth¹,

Nolle²,

Phumiwasana³

et al. 2003

Financial Market

179

107

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Ongoing changes in the structure and nature of banking, as well as banking crises across the globe have focused the attention of policy makers on the appropriate structure, scope, and degree of independence of banking supervision. Key issues for banking supervision structure are whether there should be one or multiple supervisory authorities, and whether the central bank should be involved in bank supervision. The issue pertaining to the scope of supervision is whether bank supervisory authorities should supervise other financial service industries, including in particular securities and insurance. Finally, the issue regarding the independence of supervisory authorities is the degree to which bank supervisors should be subject to political and economic policy pressure and influence. How these issues are addressed is important, because policies that fail to provide for an appropriate bank supervisory framework may undermine bank performance and even lead to full-scale banking crises.The intense interest policy makers have shown in these issues has not been matched, however, by researchers. In particular, there is very little systematic empirical evidence on how, or indeed whether, the structure, scope, or independence of bank supervision affects the banking industry. This paper addresses this gap in three respects. First, drawing on the existing literature, we discuss the various policy issues surrounding the structure, scope, and degree of independence of bank supervision. Second, we provide comparative information on the actual choices that have been made regarding these three aspects of supervision across a wide range of developed and emerging market economies. Third, using both country-specific data for 55 countries in all parts of the world, and data for over 2,300 individual banks in those countries, we examine the relationship between the structure, scope, and independence of bank supervision and one key dimension of the banking industrybank profitability. Our results indicate, at most, a weak influence for the structure of supervision on bank performance. In particular, we find some evidence that a single-supervisor system enhances bank performance. However, following our discussion of the caution one must use in interpreting data on the supervisory framework, our re-estimates using an alternative source of data on the structure of supervision failed to duplicate this result.Our results have a bearing on a key dimension of the policy debate on how to structure supervision. In particular, given the dearth of empirical evidence on the issues, advocates of one form or another of supervisory structure have asserted that a particular change is likely to affect (favorably or adversely, as the advocate sees fit) the performance of banks. Our results provide little support at best to the belief that any particular bank supervisory structure will greatly affect bank performance. This is significant, because it suggests that the on-going debate might more broadly focus on the impact of the supervisory structure on o...

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“…Arguments in favor of the separation of these two functions have mostly revolved around the possibility of conflicts of interest (for instance, see Goodhart and Schoenmaker, 1993;Di Noia and Di Giorgio, 1999). Goodhart and Schoenmaker (1993) suggested that such conflicts of interest may occur due to the different objectives, economic models, and preferences involved in macroeconomic and microeconomic policy-making process, as well as administrative complications.…”

Section: Literature Reviewmentioning

confidence: 99%

Financial Supervision and Bank Profitability: Evidence from East Asia

Raz¹,

Irawan²,

Indra³

et al. 2014

J. Rev. Global Econ.

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The growing fragility of the financial system has led to the increasing importance of financial supervision's role. In particular, the financial supervision regime is expected to promote bank performance and maintain financial stability. Unfortunately, studies on the relationship between banking supervisory regimes and bank performance are still limited. To address this issue, this paper focuses on the following four aspects of banking supervision:(i) the structure of supervisory frameworks, (ii) the independence of supervisory institutions (iii) the scope of supervisory role; and (iv) the authority of central banks in the banking sector. We use country-specific data for seven East-Asian countries and data for 39 individual banks in those countries over the period of 2006-2011 to examine how different financial supervision regimes in the region influence bank performance. The results show strong evidence that the existence of a single bank supervisor, instead of multiple, will enhance bank profitability. Mean while, there is a mixed result regarding the role of central bank independence in improving bank profitability. Furthermore, the authority of central banks in the banking sector and the scope of bank supervision do not show strong relationship with bank performance.

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Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?

Cited by 83 publications

References 8 publications

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

A Cross‐Country Analysis of the Bank Supervisory Framework and Bank Performance

Financial Supervision and Bank Profitability: Evidence from East Asia

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