IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Empirics of Banking Regulation

  • TCHANA TCHANA, Fulbert

This paper assesses empirically whether banking regulation is effective at preventing banking crises. We use a monthly index of banking system fragility, which captures almost every source of risk in the banking system, to estimate the effect of regulatory measures (entry restriction, reserve requirement, deposit insurance, and capital adequacy requirement) on banking stability in the context of a Markov-switching model. We apply this method to the Indonesian banking system, which has been subject to several regulatory changes over the last couple of decades, and at the same time, has experienced a severe systemic crisis. We draw from this research the following findings: (i) entry restriction reduces crisis duration and also the probability of their occurrence; (ii) larger reserve requirements reduce crisis duration, but increase banking instability; (iii) deposit insurance increases banking system stability and reduces crisis duration. (vi) capital adequacy requirement improves stability and reduces the expected duration of banking crises.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://mpra.ub.uni-muenchen.de/9299/1/MPRA_paper_9299.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9299.

as
in new window

Length:
Date of creation: 15 Jun 2008
Date of revision:
Handle: RePEc:pra:mprapa:9299
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. TCHANA TCHANA, Fulbert, 2007. "The Welfare Cost of Banking Regulation," MPRA Paper 7588, University Library of Munich, Germany.
  2. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
  3. repec:ebl:ecbull:v:28:y:2002:i:6:p:a0 is not listed on IDEAS
  4. René Garcia & Pierre Perron, 1995. "An Analysis of the Real Interest Rate Under Regime Shifts," CIRANO Working Papers 95s-05, CIRANO.
  5. Alan D. Morrison & Lucy White, 2005. "Crises and Capital Requirements in Banking," American Economic Review, American Economic Association, vol. 95(5), pages 1548-1572, December.
  6. Maddala, G.S., 1986. "Disequilibrium, self-selection, and switching models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 28, pages 1633-1688 Elsevier.
  7. Garcia, Rene, 1998. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 763-88, August.
  8. Gordon, S.F. & Filardo, A.J., 1993. "Business Cycle Durations," Papers 9328, Laval - Recherche en Politique Economique.
  9. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  10. Marc Klau & John Hawkins, 2000. "Measuring potential vulnerabilities in emerging market economies," BIS Working Papers 91, Bank for International Settlements.
  11. Tai-kuang Ho, 2004. "How Useful are Regime-Switching Models in Banking Crises Identification?," Econometric Society 2004 Far Eastern Meetings 764, Econometric Society.
  12. Asli Demirguc-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation," Econometric Society World Congress 2000 Contributed Papers 1751, Econometric Society.
  13. Asli Demirguc-Kunt & Edward J. Kane & Luc Laeven, 2007. "Determinants of Deposit-Insurance Adoption and Design," NBER Working Papers 12862, National Bureau of Economic Research, Inc.
  14. Eichengreen, Barry & Rose, Andrew K. & Wyplosz, Charles, 1995. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," Center for International and Development Economics Research (CIDER) Working Papers 233397, University of California-Berkeley, Department of Economics.
  15. Coe, Patrick J, 2002. "Financial Crisis and the Great Depression: A Regime Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 76-93, February.
  16. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
  17. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  18. Poonam Gupta & Asli Demirgüç-Kunt & Enrica Detragiache, 2000. "Inside the Crisis; An Empirical Analysis of Banking Systems in Distress," IMF Working Papers 00/156, International Monetary Fund.
  19. TCHANA TCHANA, Fulbert, 2008. "Regulation and Banking Stability: A Survey of Empirical Studies," MPRA Paper 9298, University Library of Munich, Germany, revised 30 May 2008.
  20. 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, 03.
  21. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
  22. Franklin Allen & Richard Herring, 2001. "Banking Regulation versus Securities Market Regulation," Center for Financial Institutions Working Papers 01-29, Wharton School Center for Financial Institutions, University of Pennsylvania.
  23. Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, vol. 43(5), pages 1219-33, December.
  24. Ho, Tai-Kuang & von Hagen, Jürgen, 2004. "Money Market Pressure and the Determinants of Banking Crises," CEPR Discussion Papers 4651, C.E.P.R. Discussion Papers.
  25. Kibritcioglu, Aykut, 2002. "Excessive Risk-Taking, Banking Sector Fragility, and Banking Crises," Working Papers 02-0114, University of Illinois at Urbana-Champaign, College of Business.
  26. Enrica Detragiache & Thierry Tressel & Poonam Gupta, 2008. "Foreign Banks in Poor Countries: Theory and Evidence," Journal of Finance, American Finance Association, vol. 63(5), pages 2123-2160, October.
  27. Lucy White & Alan D. Morrison, 2002. "Crises and Capital Requirements in Banking," OFRC Working Papers Series 2002fe05, Oxford Financial Research Centre.
  28. Blum, Jurg, 1999. "Do capital adequacy requirements reduce risks in banking?," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 755-771, May.
  29. Andrew J. Filardo, 1993. "Business cycle phases and their transitional dynamics," Research Working Paper 93-14, Federal Reserve Bank of Kansas City.
  30. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
  31. Arto Kovanen & Olivier M Frecaut & Barbara E Baldwin & Charles Enoch, 2001. "Indonesia; Anatomy of a Banking Crisis Two Years of Living Dangerously 1997–99," IMF Working Papers 01/52, International Monetary Fund.
  32. Bilin Neyapti & Nergiz Dincer, 2004. "Measuring the Quality of Bank Regulation and Supervision, with an Application to Transition Economies," Working Papers 2004/2, Turkish Economic Association.
  33. Burhanuddin Abdullah & Wimboh Santoso, 2001. "The Indonesian banking industry: competition, consolidation and systemic stability," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 80-92 Bank for International Settlements.
  34. Scott E. Hein & Jonathan D. Stewart, 2002. "Reserve requirements: A modern perspective," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 41-52.
  35. Allen, Franklin & Carletti, Elena, 2013. "New theories to underpin financial reform," Journal of Financial Stability, Elsevier, vol. 9(2), pages 242-249.
  36. Franklin Allen & Douglas Gale, 2003. "Financial Intermediaries and Markets," Center for Financial Institutions Working Papers 00-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
  37. Demirguc-Kent, Asli & Detragiache, Enrica, 1998. "Financial liberalization and financial fragility," Policy Research Working Paper Series 1917, The World Bank.
  38. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:9299. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.