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Who should supervise banks for the banking sector stability?

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  • Anichul Hoque Khan
  • Hasnat Dewan

Abstract

We empirically examine by whom the commercial banks should be supervised for the stability of a banking sector. With a cross-sectional dataset from 78 countries and using a logit estimation model, we find that the probability of the instability of a country's banking sector reduces if the commercial banks are supervised exclusively by the country's central bank. This probability is even higher if the central bank can conduct its supervision in a less-corrupt institutional environment. Finally, by carrying out some counter-factual thought experiments, we confirm that banking supervision causes banking sector instability, not vice versa.

Suggested Citation

  • Anichul Hoque Khan & Hasnat Dewan, 2013. "Who should supervise banks for the banking sector stability?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(17), pages 1531-1537, November.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:17:p:1531-1537
    DOI: 10.1080/13504851.2013.829175
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    References listed on IDEAS

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    1. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999. "Is Bank Supervision Central to Central Banking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 629-653.
    2. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
    3. Kahn, Charles M. & Santos, Joao A.C., 2005. "Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision," European Economic Review, Elsevier, vol. 49(8), pages 2107-2136, November.
    4. repec:bla:intfin:v:2:y:1999:i:3:p:361-78 is not listed on IDEAS
    5. Carmine Di Noia & Giorgio Di Giorgio, 1999. "Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?," International Finance, Wiley Blackwell, vol. 2(3), pages 361-378, November.
    6. Anichul Hoque Khan & Kazi Nazrul Islam, 2012. "Power of a Deposit Insurance Scheme¡¯s Authority and a Banking Crisis," Journal of Business Administration Research, Journal of Business Administration Research, Sciedu Press, vol. 1(2), pages 88-98, October.
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