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Bank supervision and corruption in lending

  • Beck, Thorsten
  • Demirguc-Kunt, Asli
  • Levine, Ross

Which commercial bank supervisory policies ease - or intensify - the degree to which bank corruption is an obstacle to firms raising external finance? Based on new data from more than 2,500 firms across 37 countries, this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms%u2019 financing obstacles. We find that the traditional approach to bank supervision, which involves empowering official supervisory agencies to directly monitor, discipline, and influence banks, does not improve the integrity of bank lending. Rather, we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance. In extensions, we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 53 (2006)
Issue (Month): 8 (November)
Pages: 2131-2163

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Handle: RePEc:eee:moneco:v:53:y:2006:i:8:p:2131-2163
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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