Global Trends in the Bank Regulatory and Supervisory Environment

Abstract

Recent changes in the nature of banking and costly banking crises in countries around the world have focused attention on the adequacy of bank regulation and supervision. Policy makers have struggled with questions about the most appropriate regulatory regime to adopt, and the supervisory practices best suited to implement and enforce the regime. Several countries, in this regard, have recently transferred regulation and supervision to a separate agency from the central bank, with China being the most recent to do so in April 2003. Many countries have also recently taken actions to improve their prudential regulations and supervisory practices governing the activities of banks, a process that is likely to receive added impetus when the new Basel Capital Accord comes into effect. This paper provides an overview of key global trends in bank regulation and supervision. The study draws on recent research and detailed cross-country data, including data from a recent World Bank survey of bank regulation and supervision worldwide, to focus on some of the underlying reasons for and implications of developments in a variety of areas. These include the following: the nature and changing role of banks in promoting economic growth, development and stability; restrictions on the scope of banking activities and allowable ownership arrangements in which to conduct them; the structure and scope of bank regulatory and supervisory schemes; supervisory practices to promote safe and sound banks; market discipline and corporate governance in banking; deposit insurance schemes; offshore banking, and potential disputes in banking arising from World Trade Organization membership.