IDEAS home Printed from https://ideas.repec.org/a/nbp/nbpbik/v44y2013i2p119-158.html
   My bibliography  Save this article

Regulation and self-regulation in banking: in search of optimum

Author

Listed:
  • Monika Marcinkowska

    (University of Lodz)

Abstract

The paper explores the nature of regulation in the banking sector and considers the following regulatory continuum: from free banking through self-regulation to supervisory regulation. Because the state’s responsibility for the functioning of the financial system requires the state to enact laws forming the system’s legal framework, laissez-faireism in banking is not possible. Nevertheless, the modern regulatory dialectics – liberalisation and deregulation alternating with re-regulation – brings up the issue of possible advantages and disadvantages (benefits and costs) of the two approaches for the economy. Overregulation is costly, but lenient regulations may undermine economic stability. This means that a subtle balance between under-regulation and overregulation in the banking sector should be sought. There is a need for well-balanced proportions of legal standards and voluntary, negotiated rules. As perfect regulations do not exist, an effective and generally accepted legal framework must be created for the banking system, strengthened by the imperatives of ethics.

Suggested Citation

  • Monika Marcinkowska, 2013. "Regulation and self-regulation in banking: in search of optimum," Bank i Kredyt, Narodowy Bank Polski, vol. 44(2), pages 119-158.
  • Handle: RePEc:nbp:nbpbik:v:44:y:2013:i:2:p:119-158
    as

    Download full text from publisher

    File URL: https://bankikredyt.nbp.pl/content/2013/02/bik_02_2013_01_art.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bruno, Valentina & Claessens, Stijn, 2010. "Corporate governance and regulation: Can there be too much of a good thing?," Journal of Financial Intermediation, Elsevier, vol. 19(4), pages 461-482, October.
    2. Alain de Serres & Shuji Kobayakawa & Torsten Sløk & Laura Vartia, 2006. "Regulation of Financial Systems and Economic Growth," OECD Economics Department Working Papers 506, OECD Publishing.
    3. Lerong He & Shih-Jen Ho, 2011. "Monitoring Costs, Managerial Ethics and Corporate Governance: A Modeling Approach," Journal of Business Ethics, Springer, vol. 99(4), pages 623-635, April.
    4. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, October.
    5. Martin Čihák & Alexander Tieman, 2011. "Quality of Financial Sector Regulation and Supervision Around the World," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 15, Edward Elgar Publishing.
    6. de Jong, Abe & DeJong, Douglas V. & Mertens, Gerard & Wasley, Charles E., 2005. "The role of self-regulation in corporate governance: evidence and implications from The Netherlands," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 473-503, June.
    7. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    8. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence [‘A model of growth through creative destruction’]," Economic Policy, CEPR;CES;MSH, vol. 18(36), pages 9-72.
    9. Boot, Arnoud W A & Thakor, Anjan V, 1993. "Self-Interested Bank Regulation," American Economic Review, American Economic Association, vol. 83(2), pages 206-212, May.
    10. Alnoor Bhimani, 2008. "Making corporate governance count: the fusion of ethics and economic rationality," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(2), pages 135-147, May.
    11. Lazzarini, Sergio G. & Carvalho de Mello, Pedro, 2001. "Governmental versus self-regulation of derivative markets: examining the U.S. and Brazilian experience," Journal of Economics and Business, Elsevier, vol. 53(2-3), pages 185-207.
    12. James R. Barth & Gerard Caprio Jr. & Ross Levine, 2002. "Financial Regulation and Performance: Cross-COuntry Evidence," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 4, pages 113-142, Central Bank of Chile.
    13. Portes,, 1987. "Threats to International Financial Stability," Cambridge Books, Cambridge University Press, number 9780521347891, October.
    14. Goergens, Tue & Paldam, Martin & Würtz, Allan, "undated". "How does Public Regulation affect Growth?," Economics Working Papers 2003-14, Department of Economics and Business Economics, Aarhus University.
    15. Moshirian, Fariborz, 2011. "The global financial crisis and the evolution of markets, institutions and regulation," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 502-511, March.
    16. Amit Sachdeva, 2010. "Regulatory competition in European company law," European Journal of Law and Economics, Springer, vol. 30(2), pages 137-170, October.
    17. Mr. Udaibir S Das & Mr. Marc G Quintyn, 2002. "Crisis Prevention and Crisis Management: The Role of Regulatory Governance," IMF Working Papers 2002/163, International Monetary Fund.
    18. Ross Levine, 2012. "The Governance of Financial Regulation: Reform Lessons from the Recent Crisis," International Review of Finance, International Review of Finance Ltd., vol. 12(1), pages 39-56, March.
    19. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    20. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
    21. Long, Millard & Vittas, Dimitri, 1991. "Financial regulation : changing the rules of the game," Policy Research Working Paper Series 803, The World Bank.
    22. Goodhart, C.A.E., 2008. "The regulatory response to the financial crisis," Journal of Financial Stability, Elsevier, vol. 4(4), pages 351-358, December.
    23. E. Philip Davis & Dilruba Karim, 2010. "Macroprudential Regulation - The Missing Policy Pillar," National Institute Economic Review, National Institute of Economic and Social Research, vol. 211(1), pages 67-80, January.
    24. Alex Cukierman, 2011. "Reflections on the Crisis and on its Lessons for Regulatory Reforms and for Central Bank Policies," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 3, Edward Elgar Publishing.
    25. Calomiris, Charles W., 1999. "Building an incentive-compatible safety net," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1499-1519, October.
    26. Beck, Thorsten, 2010. "Regulatory Reform After the Crisis: Opportunities and Pitfalls," CEPR Discussion Papers 7733, C.E.P.R. Discussion Papers.
    27. Edward Kane, 1997. "Ethical Foundations of Financial Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(1), pages 51-74, August.
    28. Ms. Enrica Detragiache & Asli Demirgüç-Kunt, 1998. "Financial Liberalization and Financial Fragility," IMF Working Papers 1998/083, International Monetary Fund.
    29. Mathias Dewatripont & Jean-Charles Rochet & Jean Tirole, 2010. "Lessons from the Crisis," Introductory Chapters, in: Balancing the Banks: Global Lessons from the Financial Crisis, Princeton University Press.
    30. George Gelauff & Arjan Lejour, 2006. "Five Lisbon highlights; the economic impact of reaching these targets," CPB Document 104, CPB Netherlands Bureau for Economic Policy Analysis.
    31. Charles A.E. Goodhart, 2009. "The Regulatory Response to the Financial Crisis," Books, Edward Elgar Publishing, number 13514.
    32. Claessens, Stijn, 2006. "Current challenges in financial regulation," Policy Research Working Paper Series 4103, The World Bank.
    33. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2012. "Guardians of Finance: Making Regulators Work for Us," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017393, December.
    34. Charles A. E. Goodhart, 2008. "The Regulatory Response to the Financial Crisis," CESifo Working Paper Series 2257, CESifo.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Demirgüç-Kunt, Asli & Detragiache, Enrica, 2011. "Basel Core Principles and bank soundness: Does compliance matter?," Journal of Financial Stability, Elsevier, vol. 7(4), pages 179-190, December.
    2. Hoque, Hafiz & Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Douady, Raphael, 2015. "Bank regulation, risk and return: Evidence from the credit and sovereign debt crises," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 455-474.
    3. Ayadi, Rym & Naceur, Sami Ben & Casu, Barbara & Quinn, Barry, 2016. "Does Basel compliance matter for bank performance?," Journal of Financial Stability, Elsevier, vol. 23(C), pages 15-32.
    4. Ongena, Steven & Popov, Alexander & Udell, Gregory F., 2013. "“When the cat's away the mice will play”: Does regulation at home affect bank risk-taking abroad?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 727-750.
    5. Poczter, Sharon, 2016. "The long-term effects of bank recapitalization: Evidence from Indonesia," Journal of Financial Intermediation, Elsevier, vol. 25(C), pages 131-153.
    6. Gerard Caprio, 2011. "Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 14, Edward Elgar Publishing.
    7. Mohammad Bitar & Sami Ben Naceur & Rym Ayadi & Thomas Walker, 2021. "Basel Compliance and Financial Stability: Evidence from Islamic Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 60(1), pages 81-134, August.
    8. Iftekhar Hasan & Liuling Liu & Gaiyan Zhang, 2016. "The Determinants of Global Bank Credit-Default-Swap Spreads," Journal of Financial Services Research, Springer;Western Finance Association, vol. 50(3), pages 275-309, December.
    9. Saibal Gosh, 2011. "Does activity mix and funding strategy vary across ownership?," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 1, pages 1-1, June.
    10. Asli Demirgüç-Kunt & Ms. Enrica Detragiache, 2010. "Basel Core Principles and Bank Risk: Does Compliance Matter?," IMF Working Papers 2010/081, International Monetary Fund.
    11. Swamy, Vighneswara, 2014. "Bank regulation, supervision and efficiency during the global financial crisis," MPRA Paper 58295, University Library of Munich, Germany.
    12. García-Sánchez, Isabel-María & García-Meca, Emma & Cuadrado-Ballesteros, Beatriz, 2017. "Do financial experts on audit committees matter for bank insolvency risk-taking? The monitoring role of bank regulation and ethical policy," Journal of Business Research, Elsevier, vol. 76(C), pages 52-66.
    13. Salma Louati & Younes Boujelbene, 2021. "Basel Regulations and Banks’ Risk-efficiency Nexus: Evidence from Dynamic Simultaneous-equation Models," Journal of African Business, Taylor & Francis Journals, vol. 22(4), pages 578-602, October.
    14. Luo, Yun & Tanna, Sailesh & De Vita, Glauco, 2016. "Financial openness, risk and bank efficiency: Cross-country evidence," Journal of Financial Stability, Elsevier, vol. 24(C), pages 132-148.
    15. Ghosh, Saibal, 2009. "Does activity mix and funding strategy vary across ownership? Evidence from Indian banks," MPRA Paper 32070, University Library of Munich, Germany.
    16. Prabha, Apanard (Penny) & Wihlborg, Clas, 2014. "Implicit guarantees, business models and banks’ risk-taking through the crisis: Global and European perspectives," Journal of Economics and Business, Elsevier, vol. 76(C), pages 10-38.
    17. Luc Laeven, 2011. "Banking Crises: A Review," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 17-40, December.
    18. Schüler, Martin, 2003. "Incentive Problems in Banking Supervision: The European Case," ZEW Discussion Papers 03-62, ZEW - Leibniz Centre for European Economic Research.
    19. Apanard P. Prabha & Clas Wihlborg & Thomas D. Willett, 2012. "Market Discipline for Financial Institutions and Markets for Information," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 13, Edward Elgar Publishing.
    20. Alexander, Gordon J. & Baptista, Alexandre M. & Yan, Shu, 2013. "A comparison of the original and revised Basel market risk frameworks for regulating bank capital," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 249-268.

    More about this item

    Keywords

    banks; regulations; self-regulation; financial system safety;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbp:nbpbik:v:44:y:2013:i:2:p:119-158. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wojciech Burjanek (email available below). General contact details of provider: https://edirc.repec.org/data/nbpgvpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.