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Banking Regulation around the World

Patterns, Determinants, and Impact

Dr. Tao Li, Department of Financial and Management Studies, SOAS, University of London, Thornhaugh Street, Russell Square, London WC1H 0XG, UK and School of Finance, Renmin University of China, Beijing 100872,China. Tel. +44-20-78984242, Fax. +44-20-76377075. E-mail: tl2{at}soas.ac.uk

This article empirically investigates the patterns, determinants and impact of banking regulation in a large cross section of countries. Major differences of banking regulation across countries are found to be in four dimensions, i.e., the extent of government ownership of banks, the intensity of direct regulation of banks, the amount of measures to empower outside investors to monitor banks and the comprehensiveness of explicit deposit insurance. Based on these four dimensions, we identify five different patterns of banking regulation around the world. The article then tests economic, legal and cultural theories of the determinants of banking regulation, and finds dominant support for economic theory. Assessment regressions present evidence of different correlations of various banking regulation measures with banking efficiency, development and overall financial development. The findings imply a ‘big push’ view of reforming banking regulation, i.e., a big push to economic and financial sector development will lead to subsequent improvements in banking regulation, which in turn will help the country's banking and financial development.

Key Words: JEL Classification: G21 • JEL Classification: G38 • JEL Classification: k2 • JEL Classification: L51 • Banking regulation • law • culture • economic development • banking efficiency • banking • development • financial development

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