The Regulation and Supervision of Banks around the World: A New Database

TLDR

Despite advances in finance, predicting consultants’ advice on bank regulation for developing countries remains unclear. The study seeks to explain why consultants’ recommendations align so closely with their own country’s regulatory framework. By compiling a comprehensive database of national banking regulation and supervision, the authors enable systematic analysis of best practices. Consultants’ advice is highly biased toward their own country’s model, and the absence of a systematic database perpetuates reforms based on bias rather than evidence.

Abstract

NOTWITHSTANDING ALL the accomplishments in the fields of finance and financial economics in the past two decades, if a survey were taken of all the international consultants on appropriate bank regulation and supervision for developing countries, what would be the best way to predict the advice they would offer? Anecdotal evidence accumulated over the years suggests that an astonishingly high degree of accuracy could be obtained merely by knowing each consultant's country of origin: experts almost always view their own regulatory and supervisory framework as an appropriate model for developing countries. Beyond some inevitable home bias, what would explain such a good fit? The answer is that, until now, there was no systematically assembled database on the way in which countries regulate and supervise their banking systems and thus no comprehensive analysis of which regulations and supervisory practices are [End Page 183] most appropriate. This ignorance provides fertile ground for reforms based on bias instead of facts.