Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis
IMF Working Papers, May 1, 2004
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- Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis
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Bibliographic details
- Authors: Udaibir S Das, Marc G Quintyn, Kina Chenard
- Published: May 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451851311.001
Summary
- The paper provides empirical evidence that the quality of regulatory governance—governance practices adopted by financial system regulators and supervisors—matters for financial system soundness.
- Indices of financial system soundness and regulatory governance are constructed based on country data collected from the Financial Sector Assessment Program (FSAP).
- Regression results indicate that regulatory governance has a significant influence on financial system soundness, along with variables reflecting macroeconomic conditions, the structure of the banking system, and the quality of political institutions and public sector governance.
- The results also indicate that good public sector governance amplifies the impact of regulatory governance on financial system soundness.
Data and Methods
- Data source: Financial Sector Assessment Program (FSAP) country data.
- Constructed indices:
- Index of financial system soundness.
- Index of regulatory governance.
- Empirical approach: Regression analysis to evaluate the influence of regulatory governance and other factors on financial system soundness.
Key Findings
- Regulatory governance has a significant influence on financial system soundness.
- Other significant determinants of financial system soundness include:
- Macroeconomic conditions.
- Structure of the banking system.
- Quality of political institutions.
- Public sector governance.
- Good public sector governance amplifies the positive impact of regulatory governance on financial system soundness.
Policy Implications
- Strengthening regulatory governance practices at financial system regulators and supervisors can improve financial system soundness.
- Improvements in public sector governance can enhance the effectiveness of regulatory governance reforms.
- Policy efforts should consider interactions between macroeconomic policy, banking system structure, political institutions, and governance reforms to bolster financial stability.