Ba h, James R.
A icle
Regula o y esponses by coun ies o banking/ inancial
c ises
Jou nal o Risk and Financial Managemen
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Ba h, James R. (2020) : Regula o y esponses by coun ies o banking/ inancial
c ises, Jou nal o Risk and Financial Managemen , ISSN 1911-8074, MDPI, Basel, Vol. 13, Iss. 1, pp.
1-6,
h ps://doi.o g/10.3390/j m13010001
This Ve sion is a ailable a :
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Jou nal o
Risk and Financial
Managemen
Edi o ial
Regula o y Responses by Coun ies
o Banking/Financial C ises
James R. Ba h
Depa men o Finance, Aubu n Uni e si y, Aubu n, AL 36849, USA; [email p o ec ed]
Recei ed: 15 Decembe 2019; Accep ed: 16 Decembe 2019; Published: 18 Decembe 2019
Abs ac :
Banking/ inancial c ises ha e occu ed in coun ies a all le els o income and in all pa s o
he wo ld. These c ises no only occu oo equen ly, bu also a e oo cos ly. Coun ies e e ywhe e
he e o e ha e enac ed laws ha es ablished egula o y au ho i ies wi h esponsibili y o implemen
app op ia e egula ions and supe iso y p ac ices o p omo e heal hy and s able banking sys ems.
Howe e , ela i ely ecen in o ma ion has become a ailable ha indica es ha coun ies do no
choose o egula e and supe ise hei banks in exac ly he same way. Such in o ma ion helps enable
esea che s o examine wha egula ions and supe iso y p ac ices wo k bes . The esul s o hese
examina ions can be ex emely impo an o policy make s when conside ing changes o make in
egula o y egimes in esponse o he mos ecen banking c isis.
Keywo ds:
banks; bank egula ions; banking laws; supe iso y p ac ices; inancial c ises; banking
c ises; Wo ld Bank
The Uni ed S a es (U.S.), a decade ago, su e ed i s wo s banking/ inancial c isis ha con ibu ed
o he mos se e e ecession since he G ea Dep ession. The es ima ed cos o his calami y was mo e
han $20 illion dolla s in loss ou pu (Be e Ma ke s 2015). Un o una ely, his was no he only
banking/ inancial c isis in he his o y in he U.S. Indeed, he e ha e been a oo many and oo cos ly
banking/ inancial c ises o e he pas wo cen u ies. Ce ainly, some o hese c ises we e a wo se han
o he s, wi h he wo wo s occu ing in 1930–1933 and 2007–2009. O cou se, he U.S. is no he only
coun y in he wo ld ha has su e ed om inancial c ises. C ises ha e occu ed in coun ies a all le els
o economic de elopmen and in all pa s o he wo ld. As a esul , coun ies e e ywhe e ha e a emp ed
o pu in place app op ia e inancial egula ions and supe iso y p ac ices o p e en such c ises.
In he U.S., and many o he coun ies, he esponse o e e y banking c isis has always been he
enac men o a new banking law. Fi s , u ning o he U.S., Figu e 1p o ides in o ma ion on majo
banking laws enac ed and o he ela ed in o ma ion o e he pe iod 1780 o 2010. Mos , bu no all o
he laws, we e in esponse o ela ed o a banking c isis. In pa icula , a ew banking laws, including
he Bank Holding Company Ac s o 1956 and 1970, he Riegle–Neil In e s a e Banking and B anching
E iciency Ac o 1994, and he G amm–Leach–Bliley Financial Se ices Mode niza ion Ac o 1999,
we e mainly in esponse o changing ma ke de elopmen s and no banking c ises.
J. Risk Financial Manag. 2020,13, 1; doi:10.3390/j m13010001 www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2020,13, 1 2 o 6
J. Risk Financial Manag. 2020, 13, x FOR PEER REVIEW 2 o 7
Figu e 1. Majo U.S. Banking Laws.
Figu e 1. Majo U.S. Banking Laws.
J. Risk Financial Manag. 2020,13, 1 3 o 6
In 1781, as may be seen, he i s comme cial bank was es ablished. Subsequen ly, a he ime o
enac men o laws, he igu e p o ides in o ma ion abou some o he ins i u ions es ablished and
egula ions implemen ed. Fo example, in 1863, he O ice o he Comp olle o he Cu ency was
es ablished o cha e and egula e na ional banks, in 1913, he Fede al Rese e was es ablished o se e
as a lende o las eso , and, in 1933, he Fede al Deposi Insu ance Co po a ion was es ablished o
p o ide insu ance on deposi s o p e en uns on banks. The es ablishmen o hese h ee ins i u ions
ollowed majo banking c ises. In o he cases, he implemen a ion o new egula ions ollowed majo
banking c ises. Fo ins ance, he mos ecen majo banking law, he Dodd-F ank Wall S ee Re o m
and Consume P o ec ion Ac o 2010, aised capi al equi emen s o banks and es ablished a sequence
o egula o y ac ions in he e en a big bank became oubled so ha no bank would be oo-big- o- ail.
I is impo an o emphasize ha mos o he laws and associa ed egula ions ollowed majo
banking c ises a he han enac ed and implemen ed, espec i ely, be o e such c ises. In sho , he
go e nmen has no had he o esigh o ake he app op ia e legal and egula o y ac ions o p e en
banking c ises. Indeed, he igu e clea ly shows ha a e e e y c isis he ac ion aken was insu icien
o p e en a subsequen banking c isis. O e ime, he esul has been mo e egula o s and mo e
egula ions imposed on banks. Wo se ye , some migh say, he p ocess o banking c ises ollowed by
laws and egula ions is a ne e -ending p ocess. I so, his means one migh expec ano he banking
c isis and he same egula o y esponse in abou 20 yea s.
Second, u ning o o he coun ies, many o hem su e ed banking c ises a he same and di e en
imes. Mos , i no all, o hem also enac ed laws and associa ed egula ions o p e en u u e banking
c ises. In his ega d, in he ea ly 2000s, he Wo ld Bank c ea ed a global da abase o bank egula ion
and supe ision (Ba h e al. 2001). The second upda e o he da abase was issued in 2003, he hi d in
2007, he ou h in 2012, and he i h in 2019 (Wo ld Bank 2020). The da abases we e c ea ed based on
su eys o coun ies a ound he wo ld in which ques ions we e sen o and answe s ecei ed om he
app op ia e go e nmen bank egula o y agencies. The mos ecen su ey was a majo e ision o
ea lie su eys. Howe e , i e ained se e al ques ions om he i s su ey o main ain compa abili y
o e ime. S ill o he ques ions we e e o mula ed and included o gene a e mo e p ecise answe s and
o elici in o ma ion on mac op uden ial egula ion and consume p o ec ion.
The mos ecen da abase con ains impo an in o ma ion on he way in which 159 coun ies
egula e and supe ise hei banks. Impo an ly, he da abase shows ha he e a e, in many cases,
subs an ial di e ences among he esponden egula o y agencies. In o ma ion is p o ided abou
capi al equi emen s, deposi insu ance sys ems, esolu ion o oubled banks, ma ke discipline, among
o he impo an egula o y and supe iso y opics. Gi en he impo ance o capi al equi emen s, i is
in e es ing o see he di e ences among he coun ies wi h espec o ollowing each o he h ee Basel
egimes, Basel I in 1988, Basel II in 2004, and Basel III in 2010 (Ba h and Mille 2018). As Figu e 2
shows, he e a e subs an ial a ia ion depending upon he egion o he wo ld in which he esponden
coun ies a e loca ed. The High-income OECD coun ies mos equen ly ollow Basel III (91%),
which includes he U.S. In con as , only 10% o he Sub-Saha an A ica coun ies ollows Basel III.
Figu e 3p o ides in o ma ion on ools used by coun ies o complimen capi al equi emen s.
As may be seen in panel a, a g ea e pe cen age (89%) o banking supe iso s in High-income coun ies
conduc s ess es s as pa o sys emic s abili y assessmen s han in De eloping coun ies (74%).
In addi ion, as panel b shows, 77% o High-income coun ies impose coun e cyclical capi al bu e s on
banks, while only 25% do so in De eloping coun ies. Mo eo e , in panel c, a ela i ely high pe cen age
(85%) o High-income coun ies ha e in oduced a liquidi y co e age a io, while a ela i ely low
pe cen age (30%) o De eloping coun ies ha e done he same. Also, in panel c, oughly ew (13%)
High-income coun ies ha e in oduced a ne s able unding a io, while e en ewe (3%) De eloping
coun ies ha e done he same.
J. Risk Financial Manag. 2020,13, 1 4 o 6
J. Risk Financial Manag. 2020, 13, x FOR PEER REVIEW 4 o 7
Figu e 2. Pe cen age o Coun ies Following Each Basel Regime, by Region. Sou ce: Bank Regula ion and Supe ision Su ey (BRSS), he mos ecen su ey,
h ps://www.wo ldbank.o g/en/ esea ch/b ie /BRSS. No e: This igu e is based on 2016 da a om 133 coun ies. No all high-income OECD coun ies use Basel III.
Chile ollows Basel I, and Aus ia and La ia ollow Basel II. OECD = O ganisa ion o Economic Co-ope a ion and De elopmen .
Figu e 2.
Pe cen age o Coun ies Following Each Basel Regime, by Region. Sou ce: Bank Regula ion and Supe ision Su ey (BRSS), he mos ecen su ey,
h ps://www.wo ldbank.o g/en/ esea ch/b ie /BRSS.No e: This igu e is based on 2016 da a om 133 coun ies. No all high-income OECD coun ies use Basel III.
Chile ollows Basel I, and Aus ia and La ia ollow Basel II. OECD =O ganisa ion o Economic Co-ope a ion and De elopmen .
J. Risk Financial Manag. 2020,13, 1 5 o 6
J. Risk Financial Manag. 2020, 13, x FOR PEER REVIEW 6 o 7
Figu e 3. Capi al Regula ions: Complemen a y Tools. Panel A shows pe cen o esponden s answe ing yes o whe he banking supe iso conduc s s ess es s as
pa o sys emic s abili y assessmen s. Panel B shows pe cen o esponden s answe ing yes o whe he he e a e coun e cyclical capi al bu e s. Panel C shows
pe cen o esponden s answe ing yes o whe he Basel III liquidi y equi emen s ha e been in oduced. Sou ce: Bank Regula ion and Supe ision Su ey (BRSS),
h ps://www.wo ldbank.o g/en/ esea ch/b ie /BRSS. No e: The ques ions epo ed in panels b and c we e in oduced in he mos ecen su ey o he BRSS.
89
74
0
10
20
30
40
50
60
70
80
90
100
High income De eloping
Sha e o esponden s who answe ed yes (%)
Panel A. S ess Tes s
77
25
0
10
20
30
40
50
60
70
80
90
100
High income De eloping
Sha e o esponden s who answe ed yes (%)
Panel B. Coun e cyclical
Capi al Bu e s
85
30
13
3
0
10
20
30
40
50
60
70
80
90
100
High income De eloping
Sha e o esponden s who answe ed yes (%)
Panel C. Basel III Liquidi y
Requi emen s
Liquidi y co e age a io Ne s able unding a io
Figu e 3.
Capi al Regula ions: Complemen a y Tools. Panel A shows pe cen o esponden s answe ing yes o whe he banking supe iso conduc s s ess es s as
pa o sys emic s abili y assessmen s. Panel B shows pe cen o esponden s answe ing yes o whe he he e a e coun e cyclical capi al bu e s. Panel C shows
pe cen o esponden s answe ing yes o whe he Basel III liquidi y equi emen s ha e been in oduced. Sou ce: Bank Regula ion and Supe ision Su ey (BRSS),
h ps://www.wo ldbank.o g/en/ esea ch/b ie /BRSS.No e: The ques ions epo ed in panels b and c we e in oduced in he mos ecen su ey o he BRSS.
J. Risk Financial Manag. 2020,13, 1 6 o 6
I is essen ial in many banking esea ch p ojec s o ha e in o ma ion abou how coun ies egula e
and supe ise hei banks. I is only in his way ha one is be e able o examine wha speci ic
egula ions and supe iso y p ac ices wo k bes o p omo e heal hy bank pe o mance and inancial
s abili y (Ba h e al. 2004). In his ega d, i one ocuses on a single coun y like he U.S., hen one needs
in o ma ion o e ime such as ha in Figu e 1, and in some cases e en mo e de ailed in o ma ion, in
an a emp o de e mine wha wo ks bes . To examine wha wo ks bes one migh ind i e en be e o
ely on he ype o in o ma ion collec ed and made publicly a ailable by he Wo ld Bank, as desc ibed
abo e. Inso a as banking c ises, o inancial c ises mo e gene ally, occu oo equen ly and a e
oo cos ly, esea ch elying upon he da abases discussed he e, among o he s, a e qui e impo an
in assessing he bes way o egula e banks, o inancial i ms mo e gene ally, can p o ide essen ial
in o ma ion o policy make s. O cou se, one has o ealize ha no all coun ies ha e o ely on he
same egula ions and supe iso y p ac ices o p omo e a heal hy and s able banking sys em.
Funding: This esea ch ecei ed no ex e nal unding.
Acknowledgmen s:
The au ho is ex emely g a e ul o Min Gu, Nguyen Nguyen and Jiayi Xu o excellen
assis ance in he p epa a ion o his edi o ial.
Con lic s o In e es : The au ho decla es no con lic o in e es .
Re e ences
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A New Da abase. Policy Resea ch Wo king Pape WPS2588. Washing on, DC: Wo ld Bank.
Ba h, James R., Ge a d Cap io, J ., and Ross Le ine. 2004. Bank Supe ision and Regula ion: Wha Wo ks Bes ?
Jou nal o Financial In e media ion 13: 205–48. [C ossRe ]
Ba h, James R., and S ephen M. Mille . 2018. On he ising complexi y o bank egula o y capi al equi emen s:
F om global guidelines o hei Uni ed S a es (US) implemen a ion. Jou nal o Risk and Financial Managemen
11: 77. [C ossRe ]
Be e Ma ke s. 2015. The Cos o he C isis. A ailable online: h ps://be e ma ke s.com/si es/de aul / iles/Be e %
20Ma ke s%20-%20Cos %20o %20 he%20C isis_1.pd (accessed on 13 Decembe 2019).
Wo ld Bank. 2020. Bank Regula ion and Supe ision a Decade a e he Global Financial C isis. Global Financial
De elopmen Repo . Washing on, DC: Wo ld Bank.
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