6 X 10.5 Long Title.P65

Cambridge University Press 978-0-521-85576-1 - Rethinking Bank Regulation: Till Angels Govern James R. Barth, Gerard Caprio and Ross Levine Index More information

Index

“The Abolition of Restrictions on Freedom multivariate, 195 of Establishment and Freedom to time-series, 195 Provide Services for Self-Employed angels Activities of Banks and Other Madison’s, 313, 314 Financial Institutions,” 162–163 men governed by, 9, 14 Absence of Graft variable, 186 anonymity, OFCs and, 173 accidents, historical, 275 appreciation, 53 accountability APRA. See Australian Prudential democratic, 290 Regulation Authority political process, 284, 290 arbitrage. See regulatory arbitrage standards for global, 142 Argentina accounting banking crisisof,2 bank, 138–139, 351 currency altered by, 273 practices, 356 deposit insurance in, 46 standards, 60 financial crisisof,26 Accounting Practices variable, 141 instability of, 273 Africa, 29 political system of, 273 Sub-Saharan, 138 Ashantis, 274 agencies, supervisory. See supervisory Asia, 66 agencies assessments agency-cost paradigm, 59 bond, 56 aggregate index, 81, 182 court’s role in, 126 agreements supervisory core principles, 81 intergroup, 277 asset bubbles, 27, 28 international, 21 inflated, 29 Albania, 26 Japanese, 28 allocation asset markets, 28 capital, 208, 235, 309 assets credit, 50, 236 Banamex controlled, 264 resource, 19, 20, 278 Banco de Londres controlled, 264 analysis deposit insurance funds-to-total bank bank-level, 254 assets, 353 cross-country, 234, 254 diversification of, 131, 324

405

© Cambridge University Press www.cambridge.org Cambridge University Press 978-0-521-85576-1 - Rethinking Bank Regulation: Till Angels Govern James R. Barth, Gerard Caprio and Ross Levine Index More information

406 Index

assets (cont.) bank(s). See also central bank; foreign fixed, 25 banks; government owned banks; illiquidity of, 54 unit banks market value of, 130 accessing credit of, 212 ASTC. See Australian Securities and accounting, 138–139, 351 Investments Commission activities of, 103–106 asymmetry. See information asymmetry analysis, 254 Atchafalaya Railroad and Banking behavior, 136 Company, 268 capitalization of, 227 audit commercial, 319, 320, 321 external, 323, 354 competition, 51, 110 financial statements, 137 compliance rules of, 182 required, certified, 350 corruption, 236, 238, 241 variables, 80 data on, 12, 234 auditors destabilization of, 27 independent, 56 disclosure rules, 184 licensed/certified, 80 econometric studies on, 2 negligence of, 145 economic growth influenced by, 178 silence of, 145 economic volatility influenced by, 178 Australia, 93. See also Twin Peaks model entry restrictions on, 49–52, 113, 254 (Australia) 93 failing of, 2 Australian Prudential Regulation federally chartered, 38 Authority (APRA), 93 government examination of, 56 Australian Securities and Investments government paper held by, 39 Commission (ASTC), 93 government seizure of, 39 Austro-Hungarian Empire, 282 improving, 4 authoritarianism. See political independence of, 56, 96–98, 102, 128, authoritarianism 212, 349 authority. See supervisory authority information asymmetry and, 23, 24 autocratic regimes, 15, 265, 283, 305 information technology and, 8 averages. See economic/currency unions laissez-faire approach to, 19 status averages;income level/ licensing of, 102, 265 development status averages; liquidation of, 113, 329 OECD/WTO/Offshore status loan prohibition by, 132 averages; regional averages moral hazard and, 47 nonbank financial firms owning, 106–107, bailouts 334 cost of, 136 non-chartered, 266 election, 44 nonfinancial firms owned by, 106, 107, Banamex, 263 209, 323, 333 assets controlled by, 264 nonfinancial firms owning, 106 board of directors of, 264 oversight of, 4, 8, 12, 13, 128, 245 non-governmental loans by, 264 ownership of, 52, 148, 250, 321 Banco Ambrosiano, 64 politicians’ use of, 41 Banco de Londres, 264 poverty and, 2, 178 assets controlled by, 264 predator type, 115 Banco Latino, 27, 49 private interest view of, 20, 56 Banco Nacional de Mexico. See Banamex privately owned, 155 banditry. See roving banditry private sector monitoring of, 12, 15, 47, Bangladesh, 212 61, 136–139, 189, 198 Banixco, 265 public interest view toward, 18–19

Index 407

receivership of, 329 restrictions on, 47–52, 102, 113, 254 regressions, 228 screening for, 209 regulatory variables of, 331–333 bankers resource allocation by, 19, 20, 278 Federalist, 267 restrictions on, 47–49, 102 government expenditures and, 35 risk characteristics of, 31 high return sought by, 27 self-funding by, 53 impeding freedom of, 229–235 social welfare promoted by, 9 influence attempts by, 8 society and, 8 political pressure from, 55 supervisors captured by, 236 risk-taking by, 23 supervisory agencies monitoring of, 59 rogue, 49 uniform standards for, 309 Bank for International Settlements (BIS), universal, 48 64 U.S. private, 34 bank fragility, 4, 32, 213, 214, 217, 218, 314 valuation of, 247, 252 Basel Capital Accord reduction of, 222 variables influencing, 14, 103, 331–333 cross-country differences in, 222 widely held, 250 moral hazard and, 221 bank charters, 266 reducing, 215 renewal of, 266 banking bank development, 4, 185 BCP and cross-border, 360 Canada’s, 211 commerce and, 47 cross-country analysis of, 234, 254 competition in, 110 determinants of, 206 cross-border trade in, 171 economic development and, 194 entry requirements into, 110–115 Egypt’s, 211 Europe’s early, 36 exclusions of, 185 foreign entry into, 110, 111, 113, 254, exogenous determinants of, 190, 191 335 improvements in, 185 globalization of, 83 policies associated with, 196 government intervention in, 21, 25, 284 predictions of, 186 law (1936), 51 regressions, 192, 194 market, 163 regulation/supervision and, 190, 195 Mexico’s, 263 shortcomings of, 185 monopolies, 209, 266, 268 bank efficiency, 224 OFCs legitimacy in, 174 approaches to, 226 personnel, 85 debates about, 225 real estate and, 322 improving, 228 reforms of, 281 increasing, 310 requirements, 335 indicators of, 224 systemicfailures in, 213 bank entry U.S. free, 269 applications, 336 U.S. history of, 260, 265 capital requirements for, 52–55, 319 vulnerability, 31 denial rates of, 114 World Survey’s entry into, 319 destabilizing influence of, 49 banking activity regulatory variables, 361, domestic denials of, 336 365, 370, 374 foreign, 110, 111, 113, 254, 335 banking crisis foreign denials of, 337 Argentine, 2 industry barring of, 50 capital stringency and, 221 limits on, 49 Chilean, 2 public interest view of, 49 costs of, 2 requirements for, 110–115 defined, 26

408 Index

banking crisis(cont.) bank runs deposit insurance and, 214, 220 model of, 24 Dominican Republic’s, 57 shocks and, 24 Indonesian, 2, 57 susceptibility to, 58 international, 1 bankruptcy, 227 Japanese, 2 Bankscope database, 62, 248 reduced output of, 26 bank-specific control variables, 226 regressions, 215 bank stability, 206 results of, 214–224 deposit insurance and, 219 Venezuelan, 27 Basel Capital Accord (1988), 3, 64, 222 banking policies bank fragility reduced by, 222 approach to, 8 capital ratios and, 65 determinants of, 6 capital requirements inline with, government implementation and 118 enforcement of, 14 countries complying with, 116 improving, 15 criticism of, 68 influence of, 2 definitions, 322 interventionist, 13, 18 EU’s adoption of, 164 political economic forces and, 15 guidelines, 115 political institutions and, 10 impact of, 65, 116 social welfare and, 15, 271 inadequacy of, 311 banking sector moving away from, 54 determinants in, 261 private sector monitoring and, 60 policy mechanisms, 224 regulatory regime pre-, 66, 75 uncompetitive, 50 risk and, 65, 116 banking systems. See also bank fragility zero risk weighting and, 313 early Western, 30 Basel Committee Concordat, 161 emergency measures with, 213 Basel Committee on Bank Supervision, 3, environment within, 148 21, 69, 222 fractional reserve, 25 best practice standards of, 72, 73, 81 global, 21, 83 establishment of, 64 resource allocation by, 19, 20, 278 goal of, 71, 116 solvency of, 33, 102 members of, 64 stabilizing, 13, 221 recommendations of, 178, 179 U.S.,29 regulatory convergence and, 63–74 bank managers/owners, 140 Basel Core Principles (BCP), 66, 81 Bank of Credit and Commerce attention paidto,82 International (BCCI), 29, 115 cross-border banking, 360 Bank of England, 32 deposit insurance variables, 364 bank officials, corruption of, 236, 238 essential elements of, 82 Bank of Finance, 32 external governance variables, 364 Bank of New York, 266 FSAP and, 81 Bank of the Manhattan Company, 267 information requirements, 360 Bank of the Netherlands, 32 licensing and structure, 359 Bank of the United States objectives, autonomy, powers, resources, first, 268 359 second, 268 OFC’s compliance with, 174 Bank of Virginia, 268 regulations/requirements, 359–360 bank regulations. See regulations; remedial measures and exit, 360 regulations and supervision; supervision, 67, 360 regulations, private interest view; wisdom embodied in, 99 regulations, public interest view Basel I. See Basel Capital Accord (1988)

Index 409

Basel II, 3, 69 business advanced variants of, 54, 70 Federalist-owned, 266 characteristics of, 69 initiative, 1 countries adopting, 71 efﬁcacy of, 11 Calles, Plutarco El´ıas, 265, 270 endorsement of, 12 Canada homogeneity encouraged by, 67 bank development of, 211 importance of, 311 lending integrity of, 237 pillars of, 3, 5, 69, 70, 179, 184, 199, capital. See also capital regulatory variables 206 allocation of, 208, 235, 309 private sector monitoring and, 60 debt as, 139 regulatory approach of, 5 funding sources, 319 supervisors and, 70, 241 lower cost of, 48 U.S. view on, 71 movement of personal, 132 worldwide repercussions of, 5 raising, 54 Basel standards, 72 regulations, 12, 52, 206, 221, 228, objection to, 73 337–338, 362, 366 BCCI. See Bank of Credit and Commerce regulatory index of, 121, 338 International standards, 64, 256 BCP. See Basel Core Principles capital controls Belarus, 184 impediments created by, 163 best practice capitalization, bank, 227 judgments, 271 capital markets recommendations, 10 poorly developed, 60 standards, 72, 73, 81 capital ratios bi-directional causality, 292 Basel Capital Accord and, 65 BIS. See Bank for International market pressures and, 66 Settlements 1990s, 66 bonds risk-adjusted, 118 assessment of, 56 capital regulatory index, 121, 206, 338 government, 151, 324 capital regulatory policy, 222 borrowers capital regulatory variables, 115–121, credithistory of, 23 337–338, 362, 366, 371, 375 negative/positive information about, capital requirements, 52–55 23 bank entry, 52–55, 319 politically favored, 283 Basel Capital Accord, 118 restrictions favored by, 52 importance of, 115 short leash of, 23 raising, 54 branches, subsidiaries v., 111 risk-based, 54 branching capital stringency, 115–121. See also interstate, 51 stringency 115–121 regulatory restrictions on, 260 banking crisis and, 221 Brazil, 25 initial, 118, 338 central bank of, 99 overall, 337 Breton Woods Agreement (1944), 272 capture British common law, 296 political, 34, 255 British Observer, 273 regulatory, 34, 35, 255 bubbles. See also asset bubbles cash-ﬂow, 247, 248, 249, 251 skepticism regarding, 28 causality South Sea, 28 bi-directional, 292 Burr, Aaron, 266, 267 reverse, 190, 212, 217, 292 Burundi, 273 Cayman Islands, 174

410 Index

CEBS. See Committee of European Comision Nacional Bancaria (CNB), 265 Banking Supervisors commerce central bank(s), 33, 57 banking and, 47 bank supervisory role of, 85–88, 92 restricted links to, 47–49 Brazil’s, 99 Commercial Code, 191 G-10 countries, 64 commitment problems, 281 information role of, 88 Committee of European Banking Italy’s, 99, 114 Supervisors (CEBS), 165 monetary policy and, 85 Common Law of England, 192 U.S. appointments to, 99 common membership, 161 certified audit required variable, 137 countries sharing, 162 certified audit variables, 80, Community Directives, 165 137 Company Law, 191 checks and balances, 8, 287 competition chief executive bank, 51, 110 decisions made by, 288 clearinghouse restraint of, 32 selection of, 289 conglomerates’ reduction of, 47 Chile electoral, 261, 289, 291 banking crisisof,2 executive election’s, 204 market monitoring in, 46 impeding, 284 regulation/supervision in, 214 importance of, 50, 52 China, 25, 88, 172 innovation, 84 CIA Factbook, 294 laxity of, 84 Citigroup, 109 monopolistic, 45 civil codes political, 268 French, 191 predictions regarding, 283 German, 191 regulatory variables of, 335–337, 361, Civil Law of France, 192 366, 370, 374 Civil Law of Scandinavia, 192 restrictions on, 51 civilliberties, 290 U.S. political, 50 CivilWar,38 “The Completion of the Internal Market” clearing houses (European Commission), 163 competition restrained by, 32 compliance, regulatory, 53 early 20th century, 32 conflicts of interest, 47, 139 functions performed by, 32 conglomerates. See also financial provisions of, 31 conglomerates purposes of, 31 competition reduced by, 47 climates. See tropical climates economy control by, 43 CNB. See Comision Nacional Bancaria global, 109 coalitions, rent-seeking, 285 ownership by, 321 Coase, Ronald, 276 restrictions/restrictiveness of, 108 Coasians v., 276 supervisory concerns regarding, Coasian Theorem of Bank Supervision and 109 Regulation, 275–277 Congress, votes by, 42 logic underlying, 276 Constitution, U.S., 265 usefulness of, 276 constraint cocoa, 274 executive, 98, 206 coffee, 275 politicians’, 204 Colombia, 25 consumers government intervention in, 25 protection of, 29, 30 colonists, European, 293 regulations demanded by, 20

Index 411

contagion Crimean War, 282 financial, 53 crisis/crises. See also financial crisis; Long solvency influenced by, 219 Term Capital Management Crisis; contract enforcement, 22 systemiccrisis lack of, 276 Asian, 66 problems with, 45 diversification and, 223 convergence. See regulatory East Asian, 29, 66, 308 convergence foreign bank ownership and, 223, 335 Convertibility Law, 46 international, 21 core principles. See Basel Core Principles large v. systemic, 213 (BCP) Mexican, 66, 308 corporate control, 251 Russia’s debt, 29 corporate finance cross-bank differences, 225 cross-country studies of, 237 cross-bank margins, 225, 234 obstacles to, 236 cross-country analysis, 234, 254 corporate valuation, 246 cross-country explanatory variable, corruption 240 banking, 236, 238, 241 cross-country regressions, 195, 201, Diaz and, 39 240 financial environment, 218 exploratory, 206 findings on, 257 results, 297–305 government, 189, 227 currency lending, 12, 235, 238, 241, 254, Argentina’s alteration of, 273 258 creation of, 35 nationwide, 241 debasement of, 35 reducing, 310 regulation and supervision and, 7 data. See also Bankscope database research on, 35 bank-level, 12, 234 revulsion against, 44 bank regulation and supervision, 3, 10, societal, 241 76 supervisory, 241, 305 firm-level, 12 systematic, 8 debates, bank efficiency, 225 venal, 8, 50 debt country level control variable, 249 capital as, 139 country-specific variables, 226 government, 68 court(s) holders of, 141 assessment role of, 126 Russia’scrisisof,29 intervention by, 121, 347 subordinated, 73, 139, 147, 322 involvement, 130 democracy, 261 order, 129 accountability of, 290 supervisory authority and, 129 creation of, 312 credit level of, 228 accessing bank, 212 limiting of, 283 allocation of, 50, 236 Mexico’s, 263 domestic agencies rating, 350 political systems in, 15, 284, 304 funneling of, 274 supervisory authority and, 98 history, 23 deposit insurance, 4. See also federal monitoring of, 357 deposit insurance;insurance 4 programs, 55 Argentina’s, 46 rationing, 54 arguments in favor of, 219 wide distribution of, 50 banking crisis and, 214, 220

412 Index

deposit insurance (cont.) Diaz, Porfirio, 39, 262, 315 bank stability and, 219 challenges of, 262 canceling/revoking, 134 corruption of, 39 co-insurance component of, 136 institutions established by, 265 costs of, 58–59 loans demanded by, 263 destabilizing influence of, 221, 222 political machine of, 263 differences in, 135 stationary bandit status of, 285 EU and, 166 unification of power by, 50 explicit, 53, 57, 132 dictators, 312 fees, 325 decisions of, 279 funding of, 136 differences funds-to-total bank assets, 353 cross-bank, 225 generosity, 188, 217, 220 political institutions’, 281, 292 German, 33 political systems, 260, 261, 296 government’s sponsorshipof,13 disclosure limits, 325 information, 283, 310 Mexico’s, 220 Japan’s rules of, 184 moral hazard problem and, 58, 219 risk and, 139 no explicit, 351 rules of, 184 power of, 353 U.S. and, 184 publicv. private interest view of, 59 World Survey requirements for, 326–327 regimes, 4, 220 disputes repealing of, 45, 325 potential for, 171 resident v. nonresident, 326 warding off, 172 risk facilitated by, 58 Disraeli, 178 scheme, 31 distribution U.S. system of, 57, 59 credit, 50 variables, 353–354, 364, 369, 373, 377 efficiency v., 281 weak market discipline and, 138 income, 26 Deposit Insurance Funds-to-Total Bank output, 278 Assets variable, 134 diversification, 107 deposit insurance regime, 4, 13, 220 asset, 131, 324 generosity of, 188, 240 benefits of, 48 Deposit Insurance Schemes crisis and, 223 directive on, 164 ethnic, 295 Deposit Insurer Power variable, 134 geographical, 131 deposit insurers, 353 guidelines for, 311 depositors income stream, 216 informed, 24 index, 131, 223–224, 348 suspiciousness of, 219 World Survey requirements for, 324 World Survey protection of, 324–326 divine right, 37 depository institutions Dominican Republic, 57 failure of U.S.,42 dummy variables, 191, 192, 239 deregulation religious, 295 gains from, 42 U.S., 42, 44 East Asia, 29, 66, 308 destabilization, 27 Eastern Caribbean Currency Union bank entry’s influence of, 49 (ECCU), 89 deposit insurance and, 221, 222 ECB. See European Central Bank financial system, 216 ECCU. See Eastern Caribbean Currency Deutsche Bank, 109 Union

Index 413

ECFSAP. See European Commission controlling for, 199, 291 Financial Services Action Plan political institutions’, 279 econometric studies, 2 political power and, 279 economic/currency unions status averages, problems, 286 373 regressive, 191 banking activity regulatory variables, 370 endogenous regressors, 191 capital regulatory variables, 371 engineering, financial, 55 competition regulatory variables, 370 England, 192 deposit insurance variables, 373 Enron fiasco, 29 external governance variables, 373 entrepreneurs financial conglomerate variables, 370 innovation of, 307 official supervisory structural variables, international, 1 371–372 environments official supervisory variables, 371 banking system, 148 private monitoring variables, 372 corrupt, 218 economic development geographical, 193 bank development’s influence on, 194 political, 184, 227 exogenous component of, 195 equilibrium, 44 economic efficiency, 273, 278 equity adverse influences on, 280 holders of, 141 economic growth, 178 markets, 56 economic institutions, 271 price appreciation, 53 economic power, 281 Estonia, 105 economic volatility, 26 ethnicdiversity, 295 bank’s influence on, 178 Euro, launch of, 89 economy Europe conglomerate control of, 43 colonists of, 293 government’s role in, 3, 256 early banking in, 36 Edward II, 37 European Central Bank (ECB), 89 Edward III, 36 European Commission, 163 efficiency European Commission Financial Services distribution v., 281 Action Plan (ECFSAP), 165 economic, 273, 278, 280 European Monetary Union (EMU), 89, 165 investment flow, 238 tolerance of, 166 private interest view of, 226 Europeans, tropical climates and, 293 Egypt, 25, 250 European Union (EU), 83, 162–167 bank development of, 211 Basel I adopted by, 164 elections deposit insurance schemes of, 166 bailouts and, 44 GAAP/GAAS and, 166 competitive, 261, 289, 291 harmonization of, 166, 167 free/fair, 290 IAS and, 166 electoral competition, 261, 289 measures adopted by, 165 elites moral hazard mitigated by, 166 improved welfare of, 281, 288 regulatory practices of, 172 political, 284 restrictions/restrictiveness and, 166 political systems and, 15, 286 tolerance of, 166 reduced power of, 270 executives ruling, 288 constraint of, 98, 206 EMU. See European Monetary Union election competition of, 204 endogeneity openness of, 289 bias, 253 exogeneity, 190, 191, 195

414 Index

exogenous shocks, 45 financial contagion, 53 explanatory variables, 194, 214 financial crisis exporting firms, 239 Argentine (2001), 26 expropriation Indonesian (1997), 26 costs of, 246 Financial Deposit Insurance Corporation defined, 246 (FDICA), 124 minority shareholder, 251 financial development reducing, 246 indicators of, 185 resource, 246 financial engineering, 55 external finance, 238 financial firms. See also nonfinancial externalities, 22, 26 firms extractive regimes, 193 nonbank, 106–107, 334 nonfinancial v.,24 failures financial intermediation, 258 bank, 2 North Korea’s, 274 bank supervisors and, 55 financial markets, 22 Great Depression, 45 importance of, 172 political, 179 market imperfections and, 55, 184 property rights, 22 financial regulation supervisory, 123 United Kingdom’s, 285 systemic banking, 213 financial sector U.S. depository institution, 42 development, 51 families, ruling, 279 liberalization of, 41, 52, 55 FDICA. See Financial Deposit Insurance regulations, 29, 42 Corporation Financial Sector Assessment Program federal deposit insurance (FSAP), 66 institution of, 45 attention paidto,82 Federal Deposit Insurance Corporation, 31 Basel Core Principles and, 81 establishment of, 39 independence lacking in, 84 Federalist bankers, 267 financial services Federalist owned businesses, 266 globalization of, 161 The Federalist Papers,1,9,179 non-lending, 182 Federalist-Republican tensions, 266 supervision of, 92 federally chartered banks, 38 Financial Services Agreement, 171 Federal Reserve, 104 Financial Services Authority, 96 Federal Reserve Act (1913), 39 Financial Stability Forum (FSF), 67, 173 Federal Reserve Board, 71 financial statements Federal Reserve System, 32 accuracy/reliability of, 122 federal system, U.S.,45 audit required for, 137 feudal system, 36 consolidated, 138 fiasco. See Enron fiasco; Parmalat fiasco standards, 142 fiefdoms, Mexico’s, 262 transparency of, 145–146, 355 finance financial systems corporate, 236, 237 destabilization of, 216 external, 238 ensuring integrity/stability of, 171 information problems in, 22, 24, 45 international standards for, 358 supervisory authority and, 350 firms. See also nonfinancial firms financial centers. See Offshore Financial data on, 12 Centers exporting, 239 financial conglomerates, 92, 161, 209 financial v. nonfinancial, 24 governance impeded by, 209 foreign, 239 variables, 333–334, 361, 365, 370, 374 government-owned, 239

Index 415

idiosyncratic responses by, 238 geography, 193 manufacturing, 239 diversification of, 131 nonbank financial, 106–107, 334 impact of, 193 pessimism of, 238 Germany, 38 regulations linked to, 235 civil codes of, 191 self-reporting by, 254 Civil Law of, 192, 296 service sector, 239 deposit insurance in, 33 First Banking Directive (1977), 163 hyperinflation in, 44 fiscal policy, U.S.,99 universal banks in, 48 fixed assets, 25 Ghana, 274 foreign banks, 11, 148 GLBA. See Gramm-Leach-Bliley Act changes in, 151 global accountability, 142 degree/types of, 153 globalization denial of, 337 banking’s, 21, 83 entry by, 110, 111, 113, 254, 335 financial services’, 161 entry denied to, 337 goals GATS and, 170 bank managers’, 140 jurisdictional issues with, 148 bank owners’, 140 ownership of, 223, 335 public interest, 21 percentage of, 153, 155 Goldsmith, Raymond, 307, 309 political interference with, 114 Gold Standard Act (1900), 39 foreign firms, 239 governance fragility. See bank fragility corporate, 140, 246, 310 France external, 7, 83, 139–147, 354–357, 364, civil codes of, 191 369, 373, 377 Civil Law of, 192, 296 financial conglomerates and, 209 freedom measuring quality of, 246 bankers’, 229–235 mechanisms of, 245, 247 degrees of, 240 non-financial corporations and, 246 Frescobaldi, Amerigo, 37 private sector, 255 FSAP. See Financial Sector Assessment scandals, 141 Program sources of, 141 FSF. See Financial Stability Forum government funding sources, 319 angels and, 9, 14 assessing societal role of, 6 G-10 countries, 64, 69 bank paper held by, 39 GAAP and GAAS. See U.S. Generally banks examined by, 56 Accepted Accounting Principles and banks owned by, 11, 18, 148, 186, 206, 309 Standards banks seized by, 39 Gambia, 105 bonds, 151, 324 GATS. See General Agreement on Trade checks and balances in, 8, 287 in Services coercion by, 259 GATT. See General Agreement on Tariffs Colombia’s intervention by, 25 and Trade corruption of, 189, 227 GDP. See gross domestic product debt, 41, 68 General Agreement on Tariffs and Trade defined, 1 (GATT), 167 deposit insurance sponsored by, 13 legally binding commitments of, 169 economic role of, 3, 256 General Agreement on Trade in Services expenditures of, 35 (GATS), 168 firms owned by, 239 foreign banks and, 170 hands-on approach of, 189, 209, 314 trade in services of, 168 implementation/enforcement by, 14

416 Index

government (cont.) Hegelian dialectical struggle, 43 ineptness of, 33 Herstatt Bank, 64 information needed by, 76 heteroskedasticity, 191 interventions, 21, 25, 284 logit probability model and, 213 legal systems created by, 14 history. See also Roman Empire loans to, 41 accidents of, 275 market failures and, 19, 47, 285 borrower’s credit, 23 regulation/supervision differences of, 158 political determinants of, 293 religion and, 192 reform opposition in, 281 role of, 186 U.S. banking, 260, 265 securities, 320 Hoare’s Bank, 28 self-interest of, 280 holding companies social opinions about, 161 Federal Reserve favoring of, 104 social welfare and, 9, 206, 272 organizational structure of, 104 supervisory independence of, 212 Holland government owned banks, 11, 18, 61–63, Dutch Wisselbank of, 32 148, 186, 206 households characteristics of, 62 income of, 51 declines in, international, 1 percentage of, 155 HSBC, 109 private interest view of, 62 hubris. See policy hubris public interest view of, 61 Hundred Years’ War, 36 variety of, 151 hyperinflation, 44 Gramm-Leach-Bliley Act (GLBA), 104, 105–106 IAS. See International Accounting Great Depression, 18, 26 Standards failures during, 45 illiquidity, 54 recovery from, 29 IMF. See International Monetary Fund Greece, 250 impediments, regulatory, 4 gross domestic product (GDP) incentives Burundi’s per capita, 273 importance of, 43 court involvement and, 130 limiting of, 48 Mexico’s falling per capita, 262 oversight, 61 multiple supervisors and, 85 income OABOR and per capita, 108 distribution of, 26 restrictions/restrictiveness and, 106 diversifying streams of, 216 growth household, 51 economic, 178 North Korea’s per capita, 274 OFC’s, 173, 175 South Korea’s per capita, 274 Guatemala, 184 income level/development status averages, Guinea, 105 364 banking activity regulatory variables, Hamilton, Alexander, 266 361 Hapsburg emperors, 282 capital regulatory variables, 362 harmonization, 83 competition regulatory variables, 361 capital regulatory policy, 222 deposit insurance variables, 364 capital standards’, 256 external governance variables, 364 EU and, 166, 167 financial conglomerate variables, 361 progress toward, 163 official supervisory structural variables, regulatory/supervisory forces of, 11, 363 161–175 official supervisory variables, 362 Hawke, John, 72 private monitoring variables, 363

Index 417

independence consequences of, 22 bank supervisory, 56, 96–98, 102, 128, exacerbation of, 23 212, 349 markets with severe, 30 CIA Factbook’s information on, 294 monopolies and, 49 FSAP’s lack of, 84 oligopolistic behavior and, 22 media’s, 290 information problems, 22, 24, 45 variables to measure, 96–98 information technology, 8 index/indices innovation aggregate, 81, 182 competitive, 84 broadness of, 182 entrepreneurial, 307 capital regulatory, 121, 206, 338 insolvency. See also solvency constructing of, 80, 183 declaring power of, 126, 345 diversification, 131, 223–224, 348 instability examine-every-rule-approach to, 182, Argentina’s, 273 183 macroeconomic, 213 external governance, 357 preventing, 219 moral hazard, 217 institutions. See also depository principal component, 183 institutions; political institutions private monitoring, 80, 139, 352 banking policies and, 10 regulation and supervision, 181, 195 creation of, 193 shareholder rights, 249 Diaz’s establishment of, 265 use of, 80 economic, 271 India, 34, 250 financial, 92 liquidity/reserve requirements of, 39 infrastructure of, 358 Reserve Bank of, 34 national, 228 Indianapolis Monetary Convention (1897), policy choices of, 10 45 political, 184, 255 Indonesia, 250 public, 186 banking crisis of, 2, 57 understanding, 10 financial crisisof,26 instrumental variable regressions, 194, 195, Suharto’s regime in, 10 209 industrialization supervisory powers and, 201 Austro-Hungarian Empire, 282 instrumental variables, 12, 191, kings and, 282 291–295 Russia’s, 282 identifying, 292 industry latitude, 293 bank entry barred by, 50 multivariate analysisusing, 195 Mexican, 50, 264 selection of, 192 rivalries in, 42 insurance textile, 50 activities regarding, 331 information defined, 103 borrower’s negative/positive, 23 deposit and co-, 136 central bank access to, 88 panics and, 32 disclosure, 283, 310 insured deposits, funding with, 135, 353 government’s need for, 76 intemporal transactions, 23 imperfections, 23 interest rates, 41, 55 problems, 24, 45 intergroup agreements, 277 suppression of, 32 intermediation, financial, 258, 274 transparency of, 312 International Accounting Standards (IAS), informational barriers, 203 142, 322 information asymmetry, 7, 22, 59 countries applying, 142 bank’s, 23, 24 EU and, 166

418 Index

international agreements, 21 investor protection, 29, 247, 255 international banking crisis, 1 shareholder protection, 245, 246, 247, international forces, 52 248, 250, 251 International Herald Tribune,18 least squares regressions, 190, 302 International Monetary Fund (IMF), 65, legal systems 67, 71, 272 government creation of, 14 OFCs launched by, 174 poorly developed, 60 international standards for financial lemons (used cars), 22 systems, 162 lender of last resort, 57, 88 financial regulation and supervision, lending 358 corruption in, 12, 235, 238, 241, 254, institutional and market infrastructure, 258 358 government v. private sector, 41 macroeconomic policy and data integrity, 237 transparency, 358 relationship, 7 interstate branching barriers, 51 liability interventions bank owner’s unlimited, 52 banking policy, 13, 18 limited, 52, 58 court, 121, 347 supervisor’s, 97 government, 21, 25, 284 liberalization regulatory, 13, 18, 54 countries prior to, 39 inventory model, 54 financial sector, 41, 52, 55 investment flows, 238 interest rates and, 41, 55 investors, laws protecting, 29, 247, 255 liberties, civil, 290 invisible hand theory, 19 Libya, 105 Islamic countries, 30 licensing Italy, 88 bank, 102, 265 central bank of, 99, 114 BCP’s, 359 commercial banking, 319, 320 Japan, 38, 64 liquidation, 113, 329 asset bubbles of, 28 liquidity banking crisisof,2 India’s, 39 disclosure rules in, 184 requirements, 55 Ministry of Finance of, 93 World Survey requirements for, 324 Jeffersonians, 268 loan(s) Jefferson, Thomas, 268 Banamex’s non-governmental, 264 jurisdiction, issues with, 148 Canada’s integrity with, 237 characteristics of, 7 Kemmerer mission classification of, 130, 138, 181, 326 Latin American, 63 classification stringency of, 348 monetary policy and, 25 Diaz’s demand for, 263 Kim II Sung, 274 governmental, 41 kings nonperforming, 138, 326 debasing of money by, 35 obstacles obtaining, 235 industrialization worries of, 282 performing, 138 Kupiec-O’Brien approach, 70 private sector, 41 products, 227 Latin America, 63 prohibition on, 132 laws shocks and long term, 23 banking (1936), 51 lobbying, 42 financial institutions, 92 logit probability model, 213

Index 419

Long Term Capital Management Crisis media (1998), 72 independence of, 290 long-term loans, 23 openness of, 204 loophole mining, 44 politicians scrutinized by, 312 Lord Kelvin, 75 role of, 204 Louis XIV, 37 Medici family, 37 Luxembourg, 105 Medici,Giovanni,37 Medici,Guilio, 37 macroeconomic instability, 213 Medici, Lorenzo, 37 Madison, James, 1, 9, 314, 315 Memorandum of Understanding (MoU), advice of, 46 89 angels of, 1, 9, 313, 314 United Kingdom and, 89 bank regulation and supervision and, 9 Mexican Revolution, 265 insight of, 13 Mexico, 25, 36, 262. See also Diaz, Porfirio Malaysia, 125 banking laws of, 263 Manhattan Company, 267 crisis in, 66, 308 manufacturing firms, 239 democracy of, 263 market(s). See also capital markets; deposit insurance scheme of, 220 financial markets; market discipline falling GDP per capita in, 262 access, 168, 169 fiefdoms of, 262 asset, 28 industry of, 50, 264 Chile’s monitoring of, 46 oligarchic system of, 269 equity, 56 political institutions of, 279 imperfections of, 55, 184 presidents of, 262 infrastructure of, 358 ruling families of, 279 monitoring of, 59–61 self-interest of, 280 OFCs and international banking, 173 MFN. See Most Favored Nation output, 141 microeconomic approach, 224 pressures, 66 Middle Ages, 49 securities, 198 military power, 281 severe information symmetry, 30 Ministry of Finance (Japan), 93 single banking, 163 minority(ies) market discipline, 60 oppressed, 248 factors of, 83 representation of, 248 low income countries and, 61 shareholders, 246, 247, 251 market failures monetary policy amelioration of, 206 accommodative, 28 discussions of, 22 central bank responsibility for, 85 existence of, 33 Kemmerer mission and, 25 government and, 19, 47, 285 money, debasing of, 35 key, 21 monitoring Pigouvian view of, 2, 222 Chile’s market, 46 presence of, 20 credit, 357 reducing, 241 monitoring, private sector, 60 mechanisms bank’s, 12, 15, 47, 136–139, 189, 198 banking sector policy, 224 index of, 80, 139, 352 bank oversight, 4, 8, 12, 13, 128, 245 reliance on, 61 corporate control, 251 role of, 83 governance, 245, 247 supervisory power and, 204 oppressed minorities, 248 trust placed in, 60 supervision, variables, 350–352, 363, 368, 372, 376–377

420 Index

monopolies, 22 nonperforming loans, 138, 326 banking, 209, 266, 268 nontrivial problems, 225 competition and, 45 North Korea information asymmetry and, 49 devastation of, 275 moral hazard financial intermediation and, 274 aggregate index of, 217 per capita income of, 274 bank fragility and, 221 banks and, 47 OABOR variable. See Overall Activities deposit insurance as source of, 58, 219 and Bank Ownership Restrictiveness mitigation of, 136, 166, 354 variable riskier behavior encouraged by, 215 obstacles Morgan, J. P.,33 corporate financing, 236 Most Favored Nation (MFN), 168 loan, 235 MoU. See Memorandum of Understanding Occupational Pension Review Authority, multilateral policy makers, 83 93 multiple supervisors, 350 OECD/WTO/Offshore status averages, 377 multivariate analysis, 195 banking activity regulatory variables, 374 capital regulatory variables, 375 National Banking Acts (1863, 1864), 38, 39 competition regulatory variables, 374 national institutions, 228 deposit insurance variables, 377 national political systems, 234 external governance variables, 377 national treatment, 168, 169 financial conglomerate variables, 374 requirements of, 169 official supervisory structural variables, nationwide corruption, 241 376 natural resources, 293 official supervisory variables, 375 Netherlands, 88 private monitoring variables, 376–377 net interest margins, 224, 225 OFCs. See Offshore Financial Centers bank-level regressions of, 228 Office of Fair Trading, 93 boosting, 229 Office of the Comptroller of the Currency cross-bank, 225, 234 (U.S.), 104 increasing, 258 subsidiaries favored by, 104 New England states, 269, 270 Official Supervisory Power, 122 New Orleans Canal and Banking official supervisory structural variables, Company, 268 349–350, 363, 371–372, 376 New Orleans Gas Light and Banking Offshore Financial Centers (OFCs), 89, Company, 268 162, 173–175 New York City, 68 anonymity provided by, 173 New York Free Banking Act of 1838, banking legitimacy of, 174 162–167, 269 Basel Core Principles compliance by, 174 New York State, 270 defined, 173 New Zealand, 105 emergence/growth of, 173, 175 Nicaragua, 105 ground lost by, 175 Nigeria, 85 IMF launching of, 174 non-chartered banks, 266 international banking markets and, 173 noncompetitive political systems, 283 non-OFC countries v., 175 noncompliance, 162 OIR-test. See overidentifying restrictions nonfinancial firms (OIR) test banks owning, 106, 107, 209, 323, 333 OLS. See ordinary least squares commercial banks owned by, 333 Oman, 105 corporate governance of, 246 Omnibus Banking Act of Pennsylvania financial v.,24 (1814), 269

Index 421

openness policies executive, 289 bank development, 196 media’s, 204 contentious views of, 278 ordinary least squares (OLS), 292 data transparency and macroeconomic, regressions, 286 358 outliers designing sound, 307 controlling for, 201 inefficient, 280–282 countries identified as, 201 institution’s choice of, 10 impact of, 199 path dependent, 253 removing influential, 304 public, 213 output regulation and supervision, 2, 180, 234 distribution of, 278 regulatory, 12, 193, 222 markets, 141 special interest group, 262 Overall Activities and Bank Ownership U.S. fiscal, 99 Restrictiveness (OABOR) variable, policy hubris, 75 107 policy makers per capita GDP and, 108 multilateral, 83 overhead costs, 225 reforms considered by, 80 bank-level regressions of, 228 social welfare and, 272 cross-bank differences in, 225 strategicguidance to, 182 overidentifying restrictions (OIR) test, 191, supervisory issues of, 83 194, 297 political authoritarianism, 285 oversight political capture, 34 bank, 4, 8, 12, 13, 128, 245 political elites, 284 incentives for, 61 political environment, 184 reliance on, 189 alternative indicator of, 227 ownership. See government owned banks political failures, 179 political institutions, 184, 255 Pakistan, 25 banking policies and, 10 Panama, 105 differences in, 281, 292 panics endogeneity of, 279 information suppressed during, 32 importance of, 279 insurance during, 32 international differences in, 281, 292 Pareto Optimality, 19, 275 Mexico’s, 279 Parmalat fiasco, 29 predictions about, 282–286 path dependent policies, 253 tropical climates and, 293 Pennsylvania, 269 political interference, 114 Pennsylvania Bank, 268 political power pension funds, 93 economic power’s influence on, 281 Percent of 10 Biggest Banks Rated by endogeneity of, 279 Domestic Rating Agencies variable, sources of, 278 137–138, 350 political pressure, 55 Percent of 10 Biggest Banks Rated by political process accountability, 284, 290 International Rating Agencies political system(s) variable, 137, 350 accountability of, 284, 290 performing loans, 138 Argentina’s, 273 perquisites, 246 autocratic, 15, 265, 283, 305 Peruzzi of Florence, 36 complexity/diversity of, 285 Philadelphia Bank, 268 cross-country differences in, 286 Philippines, 212 democratic, 15, 284, 304 Pigouvian view, 2, 222 differences in, 260, 261, 296

422 Index

political system(s) (cont.) principal-agent elites and, 15, 286 problem, 7, 139 focus of, 283 relationship, 8 indicators of, 286–291, 292 principal component index, 183 many countries, 16 private sector. See also monitoring, private national, 234 sector noncompetitive, 283 bank governance in, 255 organization/operation of, 278 loans to, 41 Polity IV database and, 293 problems “roving banditry” of, 285 commitment, 281 transparency of, 260 contract enforcement, 45 weak, 134 endogeneity, 286 politicians information, 24, 45 constraining of, 204 nontrivial, 225 credibility of, 283 political power, 279 influence exerted on, 9 principal-agent, 7, 139 media scrutiny of, 312 property rights, 22 private interest views of, 7 Providence Bank, 267 public interest views of, 7 provisioning stringency, 348 regulators’ captured by, 42 proxy votes, 181, 248 rewards offered by, 50 public institutions, 186 society and, 7 public policies, 213 use of banks by, 41 pyramid scheme, 30 politics borrowing and, 283 Qatar, 105 Diaz and, 263 quantifications of different dimensions, 357 history and, 293 bank regulatory variables, 331–333 importance of, 277 capital regulatory variables, 337–338, 362 supervisory independence of, competition regulatory variables, 349 335–337, 361 Polity IV database, 204 deposit insurance scheme variables, political system indicators in, 293 353–354 Polity IV Project, 98, 288 external governance variables, 354–357 Ponzi scheme, 26, 30 financial conglomerate variables, Pope Clement VII, 37 333–334, 365 Pope Leo X, 37 foreign bank entry/ownership poverty, 2, 178 limitations, 335 power. See also supervisory powers insurance activities, 331 balance of, 43 official supervisory action variables, corrective, 342 339–348 deposit insurer, 353 official supervisory structural variables, Diaz’sunification of, 50 349–350 economic, 281 overall activities restrictiveness, 333 elite’s reduced, 270 private monitoring variables, 350–352 insolvency’s, 345 real estate activities, 332 official supervisory, 122 securities activities, 331 restructuring, 126, 343 Second Banking Directive limiting of, railroads, 26 164 real estate supervisor’s, 121–132, 201, 241 activities involving, 332 pre-Glass-Steagall days, 48 bank participation in, 322

Index 423

defined, 103 competition and, 335–337, 361, 366, 370, restrictiveness of, 104 374 real sector, 51 compliance with, 53 reforms consumers’ demand for, 20 banking, 281 determinants of, 315 dilemma of, 282 dialectical view of, 44 opposition to, 281 evolution of, 43 policy makers’,80 financial sector, 29, 42 regulatory, 260, 277 firms linked to, 235 socially beneficial, 315 framework of, 57 regimes game of, 43 autocratic, 15, 283, 305 goal of, 308 characteristics of political, 288 harmonization of, 11, 161–175 deposit insurance, 4, 13, 220 headline, 43 extractive, 193 impediments to, 4 regulatory/supervisory, 66, 75 index of capital, 121, 206, 338 regional averages, 369 influence of, 260 banking activity regulatory variables, international discussions of, 21 365 interventionist, 18, 54 capital regulatory variables, 366 monitoring, 12, 255 competition regulatory variables, 366 opposition to, 54 deposit insurance variables, 369 origins of, 42 external governance variables, 369 outcomes of, 35, 311 financial conglomerate variables, 365 policies, 12, 193, 222 official supervisory structural variables, reforming, 260, 277 367–368 restrictiveness of, 48, 104, 321, 322 official supervisory variables, 367 securities market, 198 private monitoring variables, 368 social efficiency and, 260 regressions. See also cross-country variables, 331–333 regressions regulations and supervision. See also Basel bank crisis, 215 Core Principles; Coasian Theorem of bank development, 192, 194 Bank Supervision and Regulation bank level, 228 absence of data on, 3 firm-level, 240 accidental/limited information views of, first-stage, 193 271–275 instrumental variable, 194, 195, 209 accomplishments of, 270 least squares, 190, 302 approaches to, 18, 180, 189, 206, 224 OLS, 286 Australia’sTwin Peaks model of, 93 results of, 234 bank development and, 195 systemic banking crises, 215 Chile’s, 214 regressors, endogenous, 191 choosing, 271 regulation(s) conceptual foundations for, 18 approaches to, 21, 53 corruption and, 7 avoidance of, 44 country-level indicators of, 229 bank development and, 190, 195 cross-country differences in, 10, 194, 262, Basel II’s approach to, 5 274, 281 BCPs and, 359–360 data characterizing,3,76 benefits of, 20 defined, 4, 6 capital, 12, 52, 206, 221, 228, 337–338, determinants of, 15 362, 366 dilemma, 161 choices, 63 emergence of, 271

424 Index

regulations and supervision (cont.) goals of, 21 factors shaping, 271 government ownership and, 61 financial, 358 politicians and, 7 framework for viewing, 6 regulators governmental differences in, 158 agency problems of, 7 harmonization forces for, 161–175 developing country, 65 impact of, 180, 245, 250 politicians’ capturing of, 42 improving, 16 regulatory arbitrage, 68 indicators of, 286–291 regulatory capture, 34, 255 indices of, 181, 195 proponents of, 35 influence of, 279 regulatory convergence, 20 international data on, 10 Basel Committee and, 63–74 international landscape of, 85 example of, 63 interventionist policies, 13, 18, 54 regulatory index, 121, 338 judging policies of, 180 regulatory policy, 193, 222 Madison influence on, 9 regulatory practices motivation for studying, 1 EU, 172 objective of, 213 U.S., 172 one-size-fits-all approach to, 172 regulatory systems, 35 policies promoted by, 2, 180, 234 Reichs bank, 32 predictions about, 282–286 relationship proxies of, 181 lending, 7 quantifying different dimensions of, 357 principal-agent, 8 regimes, 66, 75 religion, 192 rules regarding, 181 religious composition variable, 294 social conflict and, 278–280 rent-seeking coalitions, 285 standards for, 161 Republicans, 266 strengthening of, 14 Reserve Bank of India, 34 structure, scope, independence of, 83–102 resources summary indicators of, 153 bank allocation of, 19, 20, 278 survey of, 214 expropriation of, 246 systemic stability promoted by, 108 natural, 293 time-series analysis on, 195 restrictions/restrictiveness tradeoffs, 180, 188 bank entry, 47–52, 102, 113, 254 regulations, private interest view, 34–46, borrower’s favoring of, 52 260 branching and regulatory, 260 balance of power and, 43 commerce, 47–49 banks viewed from, 20, 56 competition, 51 deposit insurance and, 59 conglomerates and, 108 efficiency and, 226 countries with least, 107 government ownership and, 62 countries with most, 107 political failures and, 179 EU countries, 166 politicians and, 7 GDP and, 106 restrictions and, 48 justification for, 108 supervisor’s self-interest in, 179 overall activities, 333 regulations, public interest view, 21–34, 260 private interest view of, 48 assumptions of, 34 real estate’s, 104 bank entry and, 49 regulatory, 48, 104, 321, 322 banks and, 18–19 securities, 104 deposit insurance and, 59 reverse causality, 190, 212, 217, 292 efficiency and, 225 Rhee Park, 274

Index 425

Ricciardi of Lucca, 36 self-interest Riksbank of Sweden, 32 governmental, 280 risk(s) Mexico’s, 280 bankers and, 23 supervisor’s, 179 banks and, 31 September 11, 2001, 2, 68, 178 Basel Capital Accord and, 65, 116 service sector firms, 239 capital ratios adjusted for, 118 SFRC. See Shadow Financial Regulatory capital requirements and, 54 Committee concealing, 27 Shadow Financial Regulatory Committee deposit insurance and, 58 (SFRC), 5, 68 disclosure of, 139 proposals of, 73 modeling techniques, 72 recommendations of, 73 moral hazard’s behavioral, 215 shareholders shifting behavior of, 53 cash-flow rights of, 248, 249 taking, 24, 27 expropriation of minority, 251 upside gains from, 53 laws protecting, 245, 246, 247, 248, 250, rogue bankers, 49 251 Roman Empire, 35 minority, 246, 247, 251 Roosevelt, FranklinD.,29 objectives of, 140 roving banditry, 285 shocks rules bank runs and, 24 bank compliance, 182 exogenous, 45 bank disclosure, 184 long-term loans and, 23 Russia transmission of, 63 debt crisisof,29 simultaneity bias, 4, 197 default (1998) of, 67 Single European Act (1986), 163 industrialization in, 282 Smith, Adam, 22 Rwanda, 275 social conflict regulation/supervision and, 278–280 safety nets theory of, 285 components of, 57 social conflict view, 278–280 support from, 57–59 predictions provided by, 282–286 Sarbanes-Oxley Act (2002), 30 social efficiency, 19 savings and loan crisis, U.S., 57, 124, 134 regulations and, 260 scandals, 141 Socialist Law, 192 Scandinavia, 192 social welfare Schumpeter, Joseph, 307 banking policies and, 15, 271 Scotland, 19 bank’s promotion of, 9 Second Banking Directive (1998), 163 government and, 9, 206, 272 powers limited by, 164 maximization of, 15, 287 securities policy makers and, 272 activities of, 331 society defined, 103 banks and, 8 dumping of, 47 beneficial reforms of, 315 government, 320 corruption of, 241 markets, 198 governmental opinion of, 161 regulating, 198 government and, 6 restrictiveness of, 104 politicians and, 7 securitization powerful segments of, 261 boom in, 68 savings of, 307 formulas related to, 72 supervisors v., 222

426 Index

solvency BCP’s ongoing, 360 banking system’s, 33, 123 effectiveness of, 56 contagion’s influence on, 219 financial services, 92 deteriorating, 102, 124, 127 independence of, 56, 96–98, 102, 128, South Korea, 132 212, 349 per capita income of, 274 mechanisms, South Sea bubble, 28 official variables for, 362, 365, 367, 371, special interests, 259 375 policies reflective of, 262 strategies for, 184 stability structural variables and, 349–350, 363, banking system, 13, 221 371–372, 376 deposit insurance and, 219 structure of, 89 regulations/supervision systemic, 108 universally practiced, 144 standards variables, 339–348 bank’suniform, 309 World Survey and, 329–330 Basel Committee’s best practice, 72, 73, supervisors 81 bank capturing of, 236 capital, 64, 256 Basel II and, 70, 241 financial statement, 142 conglomerate concerns of, 109 financial system, 358 core principles assessment by, 81 global accounting, 142 disclosure to, 81, 122, 327 grading of, 81 failures overcome by, 55 international, 162 forbearance discretion of, 346 recognition of, 67 GDP and multiple, 85 regulation and supervision, 161 integrated financial, 92 uniformity of, 67–68 legal action against, 325, 327 State of New York, 270 liability of, 97 stationary equilibrium, 44 multiple, 84, 350 stock market power of, 201, 241 crash (1987) of, 28 self-interest of, 179 development, 198 single v. multiple, 84–85, 88 stringency society v., 222 loan classification, 130, 348 term of, 97, 349 provisioning, 130 supervisory agencies, 55 structural variables, 349–350, 363, 371–372, banks monitored by, 59 376 empowering, 258 studies, econometric, 2 requirements of, 59 subordinated debt, 73, 139, 147, 322 supervisory authority Sub-Saharan Africa, 138 argument against, 92 subsidiaries bank independence from, 349 activities in, 111 bank solvency declared by, 33, 123 branches v., 111 consolidating, 92 legal status of, 111 countries moving to single, 93 Office of the Comptroller of the court’s interaction with, 129 Currency favoring of, 104 democracy and, 98 prohibited entry through, 113 failure to give, 123 Suffolk Bank, 32 financial, 350 Suharto, 10 independence of, 56, 96–98, 102, 128, supervision, 55 212, 349 action variables, 339–348 political independence of, 349 assigning, 88 powers of, 121–132, 201, 241

Index 427

responsibilities of, 96 Turkmenistan, 105, 113 scope of, 92–96 Tutsis, 273 single v. multiple, 161 Twain, Mark, 178 strengthening, 179, 228 Twin Peaks model (Australia), 93 supervisory forbearance discretion, 126 unions, regional, 161 supervisory powers, 55–56, 201 unit banks, 31 abuse of, 56 U.S. reliance on, 45 boosting, 255 United Kingdom corruption of, 241, 305 financial regulation in, 285 instrumental variable regressions and, Financial Services Authority in, 96 201 lending integrity of, 237 official, 122, 201, 203, 339 MoU and, 89 policy makers and, 83 pension funds in, 93 private sector monitoring of, 204 United States, 265, 270 scope of, 83 banking history of, 260, 265 strengthening, 236 banking systems closed in, 29 structure of, 83 Basel II and, 71 survey. See World Business Environment central bank appointments by, 99 Survey; World Survey deposit insurance system of, 57, 59 Sweden, 32 depository institution failures of, systemiccrisis 42 defined, 213 deregulation in, 42, 44 examining, 214 disclosure rules in, 184 large crisisv., 213 federal system of, 45 probability of, 256 fiscal policy formulated by, 99 free banking model of, 269 technology Gramm-Leach-Bliley Act of, 104, cannons/firearms as, 36 105–106 changing, 55 19th century, 38, 39 external finance, 238 Office of the Comptroller of the information, 8 Currency of, 104 Tequila crisis, 46 political competition in, 50 textile industry, 50 pre-Glass-Steagall days of, 48 Thailand, 65, 250 private banks in, 34 theory regulatory practices of, 172 invisible hand, 19 savings and loan crisis of, 57, 124, 134 social conflict, 285 unit banks relied on by, 45 time-series analysis, 195 United States Congress, 261 Tobin’s Q, 246, 247 United States Constitution (1789), 265 tradeoffs, 180, 188 universal banks, 48 transparency German, 48 discouraging, 260 used cars (“lemons”), 22 financial statement, 145–146, 355 U.S. Generally Accepted Accounting informational, 312 Principles and Standards (GAAP and macroeconomic policy and data, GAAS), 142, 322 358 countries applying, 142 political system, 260 EU and, 166 tropical climates, 193 usury Europeans and, 293 defined, 30 political institutions in, 293 prohibition of, 30

428 Index

valuations WBES. See World Business Environment bank, 247, 252 Survey corporate, 246 weak political systems, 134 variable(s). See also instrumental variables widely held banks, 250 audit, 80 wisdom bank, 14, 103, 331–333 BCP’s, 99 bank-specific control, 226 supervisory, 5 capital regulatory, 115–121, 337–338, 362, work(ing) best 366, 371, 375 defined, 180 certified audit, 80, 137 dimensions of, 180 competition regulatory, 335–337, 361, World Bank, 65, 67, 71, 273 366, 370, 374 World Business Environment Survey country level control, 249 (WBES), 235 country-specific, 226 database, 237 cross-country explanatory, 240 survey, 236, 237 deposit insurance, 353–354, 364, 369, 373, World Survey (2003), 319–330 377 accounting/information disclosure dummy, 191, 192, 239, 295 requirements, 326–327 explanatory, 194, 214 activities, 322–323 external governance, 7, 147, 354–357, capital, 321–322 364, 369, 373, 377 depositor (savings) protection schemes, financial conglomerates, 333–334, 361, 324–326 365, 370, 374 discipline/problem/exit, 327–329 independence measuring, 96–98 entry into banking, 319 influence of adverse, 14 external auditing requirements, 323 official supervisory, 362, 365, 367, 371, internal management/organizational 375 requirements, 324 private sector monitoring, 350–352, 363, liquidity and diversification 368, 372, 376–377 requirements, 324 religious composition, 294 ownership, 321 supervision action, 339–348 provisioning requirements, 326 supervisory structural, 349–350, 363, supervision, 329–330 371–372, 376 World Trade Organization (WTO), 83, 162 Vatican, 37 establishment of, 167 Venezuela increased membership of, 172 Banco Latino case in, 49 negotiation process of, 172 banking crisisof,27 WTO. See World Trade Organization volatility, economic, 26, 178 Volsky, Arkady, 18 zero risk weighting, 41 votes Basel Capital Accord and, 313 congressional, 42 government debt and, 68 proxy, 181, 248 zero transaction costs, 276