Abstract
The study examines the development in the banking regulatory practices across BRICS nations over the period 2000–2019. The convergence and sustainability of the regulatory framework in BRICS nations to G7 norms have also been assessed. The analysis is based on five key regulatory measures, which include activity restrictions, entry requirements for a new bank, foreign bank entry restrictions, capital stringency, and deposit insurer powers. The study constructs the regulatory indexes based on the central bank responses to the Bank Regulation and Supervision Survey (BRSS) conducted by the World Bank. To estimate the indexes, the study follows Barth, Caprio, and Levine guidelines. The result reveals that the regulators of BRICS countries impose higher restrictions on bank activities than in the G7 nations. Furthermore, the United Kingdom and Brazilian bank regulators are more liberal and imposed fewer restrictions on insurance activity only. In addition, getting a bank license is tough in both regions. Regulators allow only fit and proper applicants into the banking domain. Furthermore, the authors find that the requirements for capital are becoming more restricted in BRICS nations between 2003 and 2019 to align with Basel capital accords, relative to G7 nations. The study documents a convergence in the banking licensing requirements, and limitations on foreign bank entry and official supervisory powers in the BRICS countries with the G7 nations. The study suggests that the regulators must offer freedom to banks’ activities with increasing supervision, and it boosts the competition in the banking sector and enhances customer welfare. Furthermore, the policymakers need to redesign the deposit insurance mechanism and equip deposit insurers with more powers to enhance the safety of depositors’ interests and minimize the moral hazards in the banking sector in both regions.
Highlights
Financial institutions are considered to be the most regulated entities, with banking being a heavily regulated industry around the world
The study uses the most trusted and relevant Bank Regulation and Supervision Survey (BRSS) database to conduct the study (the World Bank Regulation and Supervisory Survey (BRSS) were designed and conducted by the World Bank research group to examine the bank regulatory and supervisory framework and its variation across the banking systems in the world). e present study uses the BRSS responses to construct the selected regulatory index and interpret them as guided in the survey manual. erefore, the conclusions based on this study offer valid inputs for policy makings. ird, the study offers a wide angle of regulation based on selected indicators
Implications e study aimed to examine the regulatory conduct of the banking sector, in the BRICS countries, namely, Brazil, Russia, India, China, and South Africa during the period 2000–2019. e regulatory gaps have been ascertained by equating the regulatory and supervisory practices adopted in BRICS vis-a-vis G7 countries. e study measured the regulatory indexes of five selected regulatory dimensions using the responses from World Bank’s BRSS survey and deploying Barth et al.’s [17] guidelines
Summary
Financial institutions are considered to be the most regulated entities, with banking being a heavily regulated industry around the world. The study uses the innovative approach of regulatory frameworks developed by Barth et al [17] to analyze and compare the regulatory standards based on bank activity restrictions, entry requirement into banking system, foreign bank entry restrictions, capital adequacy norms, and deposit insurer power and its framework across BRICS and G7 nations. Erefore the study has selected the time period to examine the trends in the regulatory and supervisory practices and recent regulatory developments in the emerging countries like BRICS and compared them with the financially developed nations, and for benchmarking, we have selected the G7 nations. The central banks of a particular country, practitioners may redesign the regulatory framework based on the practices of benchmark countries in order to enhance the stability of banks, promote healthy competition, and raise efficiency and productivity of BRICS banking systems.
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