5/9/01
AU'S BARTH AUTHORS DATABASE ON REGULATIONS OF WORLD BANKS
AUBURN – An exhaustive survey of banking regulation and supervision in 107 countries will provide critical information as policymakers grapple with reforming their banking systems, says an Auburn University finance professor who contributed to the World Bank-sponsored study.
Prior to the completion of the study, James Barth, the Lowder Eminent Scholar in Finance in AU's College of Business, says trying to make sense of the best way to reform bank regulation and supervision was like trying to order at a restaurant with no menu.
"This is basically the menu for bank regulation and supervision around the world," he says. "One has a comprehensive database. One can talk more sensibly now about how banks can be regulated and supervised. Without it, one could not make specific recommendations about how best to reform."
Among the findings of the 2 ½-year study:
** Regulatory and supervisory strategies that promote private sector forces work best. Countries that promote private monitoring of banks have better bank performance and stability.
** Countries with generous deposit insurance systems "tend to have poorer bank performance and greater bank fragility."
** Government ownership of banks is "negatively linked with both bank performance and stability."
** Countries that are encouraged to diversify their portfolios domestically and internationally suffer few crises.
Barth said the report contains important aspects of banking regulations and supervision from the reporting counties, including entry requirements, ownership restrictions, capital requirements, activity restrictions, external auditing requirements, deposit insurance features, loan classifications, accounting/disclosure requirements, troubled bank resolution actions and the quality of bank supervisory personnel.
The report is available online to bank regulators, government officials and researchers around the world at: http://www.worldbank.org/research/projects/bank_regulation.htm
"We attempted to be comprehensive," Barth said. "We obtained information from countries at every stage of development and in all parts of the world.
"The value of this report is that countries will be able to benchmark their banking regulations and supervisory practices and see how they compare to other countries. Countries will know, for example, if they are more or less stringent than neighboring countries."
Prior to completion of the report, Barth said banking experts were largely guessing when making recommendations about how best to restructure banking systems.
"We were essentially operating in a vacuum before," he said. "Emerging market countries now have a basis to assess what reforms are most appropriate. They can look at the menu and decide whether they might wish to be like the United States, Germany or some other country.
"What works best?," he said. "State ownership tends to lead to bad outcomes. The discipline of private markets, in contrast, tends to work fairly well."
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Others who worked on the study with Barth were Gerard Capric Jr., director, Financial Strategy and Policy Group & Manager, Financial Sector Research at the World Bank; and Ross Levine, Carlson Chair in Finance at the University of Minnesota.
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CONTACT: Barth, 334/844- 5344.