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Comments for “Measuring Bank Regulation and Supervision” Session 1: The Data

Comments for “Measuring Bank Regulation and Supervision” Session 1: The Data. Workshop Sponsored by World Bank DECRG-FP October 26, 2007 Washington, DC Daniel E. Nolle Senior Financial Economist Office of the Comptroller of the Currency daniel.nolle@occ.treas.gov

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Comments for “Measuring Bank Regulation and Supervision” Session 1: The Data

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  1. Comments for“Measuring Bank Regulation and Supervision”Session 1: The Data Workshop Sponsored by World Bank DECRG-FP October 26, 2007 Washington, DC Daniel E. Nolle Senior Financial Economist Office of the Comptroller of the Currency daniel.nolle@occ.treas.gov The opinions expressed are the author’s alone, and are not to be taken as representing those of the Office of the Comptroller of the Currency or the U.S. Treasury Department.

  2. Main Points • The World Bank data: uses in a supervisory environment. • The World Bank data as reference or baseline. • The World Bank data: additional considerations.

  3. #1: Uses of the WB Data in aSupervisory Environment Supervisory policy information base. • Bank-specific information, domestic and foreign operations. • Lines of communication between countries’ supervisory authorities. • Financially developed countries. Some uses of the WB data: • Regulatory and supervisory differences important – Basel II. • Reinventing the wheel vs. learning from experience of others - Regulatory restructuring.

  4. #2: The World Bank Data as Reference or Baseline • WB data provides a baseline: …complementing other cross-country data (economic systems, legal systems, etc.) … against which to gauge other cross-country financial system data. • New example: WTO information on banking system openness.

  5. World Bank Dataand WTO Data “Are Countries Fulfilling Their WTO Commitments on Foreign Bank Entry? A Cross-Country Analysis of Openness and Discrimination,” Barth, Marchetti, Nolle, and Sawangngoenyuang (Sept. 2007- draft). Compare “WTO Commitments” vs. WB “Reported Practices” across 9 dimensions of openness to bank entry and operation. • 123 countries total in each “half” of our data. • Dimension-by-dimension, country-by-country info provided. Also possible to construct overall index of openness: assign values to particular responses for each component, then weight each of the 9 components. • Index values range from 0 (very open) to 100 (very closed). • 65 countries: 16 developed, 49 developing.

  6. WTO Data of Interest by Itself • Country-by-country attributes and index values. • Mean value of WTO Commitments index: • Developed Countries: 15.8 • Developing Countries: 38.8 • Developing countries are more restrictive under WTO than developed countries (means are statistically significantly different).

  7. Main focus possible with WB-type data as reference:How do countries’ WTO postures compare toactual practices they report to the WB? Mean WB data index values for groups: • Developed countries: 23.7 • Developing countries: 27.2 • Not statistically significantly different. “Degree of Discrepancy” between the two indexes (WB index value minus WTO index value): • Mean for Developed countries: 7.8 (statistically significant). • Mean for Developing countries: -11.6 (statistically significant)

  8. How do countries’ WTO commitmentspostures compare to the actual practicesthey report to the WB? Developing countries less open to foreign entry than developed countries -- • But MORE open in practice than their WTO commitments indicate. • AND developed countries LESS open in practice than their WTO commitments indicate.

  9. #3: Possible Additional Considerations • (Significant) sub-federal level banking regulation and supervision. • Organizational structure of banking: • Is a bank holding company structure permitted? • If so, is a BHC structure widely used? • Countries differ in the breadth of supervisors’ responsibilities; responsibilities can conflict w/one another: • Many: prudential (safety and soundness). • Some: also conduct-of-business (e.g. consumer protection, investor protection, anti-money laundering).

  10. Additional Considerations:Measuring nature and scope of supervision • Regulation vs. Supervision: • Regulation = rules and laws. • Supervision = oversight of banks’ compliance with regs. • “Model” for main dimensions of supervisory process: Pillar 2 of Basel II. • Way of thinking vs. quantifiable “check list of actions” • Enforcement: inherent measurement difficulties. • “Catch the bad guys” -- After an infraction. • “Cop-on-the-beat” -- Deter infractions from taking place.

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