BANSYSREG

Banking System Stability and Bank Regulation

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 Obiettivo del progetto (Objective)

'This research project aims to better understand the relationship between bank regulation and financial stability. Motivated by theoretical and historical debates about the role of government in the financial sector and the optimal design of bank regulation, this project aims to answer the following questions: What drives financial stability, both on the country and on the bank-level? What are adequate regulatory strategies to minimize the risk of bank fragility without stifling sound and informed risk-taking by banks? What are optimal strategies to resolve weak banks? This project combines theoretical and empirical analysis and different methodologies and aggregation levels. Specifically, using unique cross-country data on bank regulation and bank failures, it will assess the relationship between regulatory approaches and bank stability and efficient bank failure resolution. Motivated by the recent crisis, it will use theoretical modeling to compare different institutional arrangements for a European financial safety net and assess the responses of different countries to failing banks in the 2007 crisis. Finally, using a unique bank-level data set for Germany, it will assess the stability of banks of different ownership types and the factors behind these differences. The research project will combine the use of existing datasets with the construction of new datasets, such as on bank failures around the world.

This research will be undertaken with a number of co-authors at different universities (Europe and the U.S.), central banks and international institutions. It will have critical policy implications for the ongoing debate on the redefinition of regulatory frameworks and crisis management tools following the 2007 crisis.'

Introduzione (Teaser)

New research on banking stability during the crisis and over the last 20 years has helped produce valuable findings and publications on the subject.

Descrizione progetto (Article)

The global financial crisis has prompted experts and governments worldwide to investigate the dynamics of banking stability, banking competition, financial systems, regulatory frameworks and ownership of banks. The EU-funded project 'Banking system stability and bank regulation' (BANSYSREG) took up this challenge and conducted an in-depth study of several key banking issues, producing a wealth of papers and findings on the topic.

In one confidential study, the project team demonstrated that private banks are less stable than government and cooperative banks. Publishing a paper on 'Bank Competition and Stability: Cross-country Heterogeneity', the team also showed how increased competition affects bank fragility, as well as implications for current regulatory reform debate.

Another paper titled 'Bank Failure Resolution: A Conceptual Framework' discussed the trade-off in bank resolution between minimising the external costs of bank failure and imposing market discipline. The publication looked at how resolution is affected by regulatory, institutional and legal frameworks, as well as the variety of failure resolution tools and preferences in different banks.

Investigating how banks' international activities affect regulatory frameworks, the paper 'Supervising Cross-Border Banks: Theory, Evidence and Policy' outlined the impact of foreign assets and deposits on the economy. It specifically examined how national regulators deal with banks that have a higher share of foreign deposits and assets, as well as a lower share of foreign equity.

Also noteworthy was the paper on 'Supranational Supervision: How Much and for Whom?' This informative working paper discussed supervision of banks on the supra-national level, guided by cross-border externalities from bank failures and heterogeneity in bank failure costs.

In addition, BANSYSREG supported new research related to the impacts of portfolio diversification and specialisation on bank stability. It helped compile a database resolution of bank issues and crises per country over the last two decades, touching on topics such as mergers, acquisitions, liquidation and restructuring. The research conducted and the papers offer valuable insights for supporting bank stability in the future.