Bank Safety and Soundness and the Structure of Bank Supervision: A Cross-Country Analysis

ABSTRACT

Two central questions about the structure of bank supervision are whether central banks should supervise banks and whether to have multiple supervisors. We use data for 70 countries across developed, emerging and transition economies to estimate statistical connections between banking performance, the structure of bank supervision, permissible banking activities, legal environments, banking market structure and macroeconomic conditions. We find that where central banks supervise banks, banks tend to have more non-performing loans. Countries with multiple supervisors have lower capital ratios and higher liquidity risk. We also find that conclusions from non-transition economies may not necessarily apply to transition economies.