The recent financial crisis has shown that the reforming in regulation and supervision is essential. This paper studies whether banking regulation improves bank soundness or more regulation lead to decrease soundness of banking. Specifically, countries which require banks to report regularly and accurately their financial data to regulators and market participants have sounder banks. In th...

The liquidity crisis in 2008 sparked interest in the role of regulation that could promote resilience and stability in the banking system. While the Public Interest theory suggests that legal policies could discipline banking activities, the Private Interest theory predicts otherwise, which impairs banking performance. The conflicting theories warrant comprehensive research, especially for Isla...

In the light of the financial crisis, the subject we are dealing with has major priority and, as the agenda shows, is a very broad topic in terms of the issues it covers. Under discussion are questions about the effects of banking regulation as well as institutional aspects of how banking regulation should be organised. Above all, we should keep in mind that banking regulation should reflect th...

Commercial banks are subject to regulation that restricts their investments. When banks are concerned for their reputation, however, they could self-regulate and invest more efficiently. Hence, a shadow banking that arises to avoid regulation has the potential to improve welfare. Still, reputation concerns depend on future economic prospects and may suddenly disappear, generating a collapse of ...

BANKING REGULATION: AN OVERALL PERSPECTIVE In this paper, Xavier Freixas and Anthony M. Santomero explore the important changes taking place in banking regulation as a result of ongoing financial innovation and the evolution of a more sophisticated system of regulation. They apply asymmetric information theory — a paradigm in which economic agents are presumed to operate in a world of incomplet...

Banking regulation and supervision were designed to protect banks from failure, but this did not avoid the large number of banking crises recently experienced by OECD countries. Using binary response models for panel data and centering on OECD countries, this paper emphasizes the poor influence of regulation and supervision on banks’ soundness and presents the main determinants of banking crise...

We show that a competitive banking system is inconsistent with an optimum quantity of private money. Because bankers cannot commit to their promises and the composition of their assets is not publicly observable, a positive franchise value is required to induce the full convertibility of bank liabilities. Under perfect competition, a positive franchise value can be obtained only if the return o...

In a post-crisis scenario, the global economy has entered into an episode of gradual recovery characterized, in part, by different growth velocities and capital flows to emerging market economies. This global environment has opened a debate relative to macroprudential regulation, financial stability and capital flows. In this paper I highlight the importance of this latest aspect, particularly ...