Banking Crises, Bank Regulation and Intervention

This cross-country analysis examines whether specific regulatory and supervisory practices and intervention policies are associated with the possibility of the recent banking crisis in countries. In general, countries significantly increase restrictions on bank regulatory capital requirement after global financial crisis but banking crisis countries do not significantly change their regulatory and supervisory structure to better prevent the next crisis. The empirical results show that (a) greater restrictiveness on bank activities and supervisory practices that strengthen the rights of private sector monitors of banks regulations decrease the likelihood of banking crisis, (b) capital regulatory stringency is positively correlated with higher likelihood of banking crisis; and (c) capital regulatory stringency is positively correlated with lower likelihood of systemic banking crisis; and both private monitoring and official supervisor power are positively associated with higher likelihood of systemic banking crisis when the authors only consider systemic banking crisis countries.

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