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Do institutions matter? Political economy of the enhancement of banking supervision

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  • Sawa Omori

    (International Christian University)

Abstract

The aim of this study is to examine the degree to which a country’s institutional quality, such as the degree of central bank independence and the rule of law, matters for enhancing banking supervision. While numerous studies have examined the effects of central bank independence (CBI) on inflation and the quality of governance on economic growth and development, empirical studies exploring these institutional impacts on banking supervisory regimes remain scarce. Hence, this study analyzes the political economy of enhancing the supervision over the banking sector using the expanded indices of enhancement of banking supervision for 100 economies from 1973 to 2013, which accounts for both institutional and operational independence of banking supervisory agencies. The results demonstrate that institutions matter in enhancing a country’s banking supervision; a higher degree of central bank independence and the rule of law leads to a higher degree of banking supervision. I also analyze the sectoral impact on banking supervision. While resource curse theory holds, the results of sectoral influence tend to differ depending on the estimation method.

Suggested Citation

  • Sawa Omori, 2024. "Do institutions matter? Political economy of the enhancement of banking supervision," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(1), pages 73-83, March.
    • Handle: RePEc:pal:jbkreg:v:25:y:2024:i:1:d:10.1057_s41261-023-00215-w
    DOI: 10.1057/s41261-023-00215-w
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    More about this item

    Keywords

    Banking supervision; Central bank independence; Rule of law; Governance; Financial reform;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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