1. Bank Regulation Is Changing: But for Better or Worse? Authors: James R. Barth Gerard Caprio, Jr. Ross Levine Presented by Levan Bzhalava

2. Do changes in bank regulation contributing positively to financial sector development?

3. Introduction Subsequent changes have taken place in the regulatory environment since the late 1990s. Some countries have reformed their regulations to empower private monitoring, others did opposite.

4. 3 Surveys 1 st : 1998-99-2000 – 117 countries – 180 questions 2 nd : 2003 – 152 countries – 275 questions 3rd: 2006 – 142 countries – 300+ questions Data

5. Survey questions Entry into banking Ownership Capital Activities External auditing requirements Internal management/organizational requirements Liquidity and diversification requirements Depositor (savings) protection schemes Provisioning requirements Accounting/information disclosure requirements Discipline/problem institutions/exit, and Supervision. The majority of questions are structured to be in a yes/no format. Simple and precise questions increase the response rate

6. Bank regulation around the world Response to crises: Mexico - easing restrictions on banks. Argentina - tightened restrictions and policies, withdraw foreign banks Most other crisis countries also moved in the direction of greater restrictions. U.S.A - dismantling barriers, separating commercial banking, investment banking, and insurance.

7. Supervision around the World Official supervisory power lowers bank development. In countries with a weak institutional environment, it was associated with increased corruption in the lending process Private monitoring boosts bank development

8. Regression Logit; Cross-country OLS; Cross-Bank OLS

9. Equations Y = α + βX Y - either bank development, the net interest margin, or overhead costs X - matrix of explanatory variables from Survey Logit (P) = α + βX P - probability that the country suffers a systemic crisis (or the probability that a firm responds that corrupt bank officials are an impediment to its growth). X - matrix of explanatory variables from Survey

18. Conclusion Official supervisory power reduce bank development, increase corruption Look to why supervisory has not been working Restrictions on bank activities are bad Focus on markets needs, improve infrastructure, incentives to use it Diversification of bank activities is important

19. “Policies may work differently in different political and institutional regimes” Gerard Caprio, Williams College

20. Supplementary sources James R. Barth, Gerard Caprio, Jr. and Ross Levine (2002) “Bank Regulation and Supervision: What Works Best,” www.bis.org/bcbs/events/b2ealev.pdf Thorsten Beck, Aslı Demirgüç-Kunt, and Ross Levine (2005) “Bank Supervision and Corruption in Lending,” Journal of Monetary Economics 53, 2131-2163 www.econ.brown.edu/fac/Ross_Levine/Publication/Forthcoming/Forth_3RL_Supervision%20 Corruption%20Lending.pdf Gerard Caprio, Williams College “Bank Regulation Is Changing: But for Better or Worse?” www.hnb.hr/dub-konf/13-konferencija/caprio-college prezentacija.ppt?tsfsg=1817391646f8e9538cc7fbeaa2c53f48 Photos sources: http://www.123rf.com/ ; Stock Photography and Stock Footage www.fotosearch.com/comstock/small-business/CSK198/ - 116k