Global Post-Crisis Banking Supervision: Supervisory Powers and Institutional Changes in the Banking Sector

Abstract

This study utilizes new data across countries on bank supervision for the years 1999-2016 to examine the impact of supervisory powers and institutional changes in supervision. It examines key characteristics of the banking sector, such as banking sector fragility, bank stability, activity restrictions, capital regulation stringency, and banking supervision independence. We find that an increase in supervisory power, accompanied by a change in a central bank’s involvement in banking supervision, led to a decrease in banking sector fragility and an increase in the stability of banking sector. We also find that capital regulation stringency and the independence of banking supervisory authorities weakened in countries where an increase in supervisory power was accompanied by institutional changes in supervision following the global financial crisis. These results shed light on the importance of bank supervisory authorities and institutional changes in the soundness of the banking sectors.