Central Bank Regulation: A Financial and Macroeconomic Tradeoff 公开

Abid, Maeshal Ahad (2012)

Permanent URL: https://etd.library.emory.edu/concern/etds/sj139271b?locale=zh
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Abstract

Abstract
Central Bank Regulation: A Financial and Macroeconomic Tradeoff


As a result of the devastation from the 2008 global crisis, many nations have enacted financial regulatory reforms in an attempt to increase stringency in bank supervision. In response to this wave of new laws, widespread debate has emerged on whether banks are too constrained or if the reforms are not demanding enough. However, the stringency of regulations is contingent upon the level of enforcement used by regulators. Examining relationships between domestic regulatory structures and financial regulatory quality can help shed insight into what type of regulators are more risk-averse and likely to strictly supervise banks. Thus, regardless of the actual stringency of new regulations, the only way they will have traction when implemented is if the financial regulator is capable or willing to effectively enforce them.

Recent research indicates that placing regulatory authority outside of the central bank
correlates with less inflation, because the central bank can solely focus on price stability when deciding the interest rate (Copelovitch and Singer, 2008). Regulatory central banks have additional concerns about financial sector health when deciding monetary policy, swaying them to implement relatively lower interest rates because higher rates are more costly for their banks. As a result, the lower interest rates cause more inflation in the domestic economy. This conclusion does not stipulate that the regulatory authority outside of the central bank will supervise with similar stringency, but increased bank instability could still create vulnerabilities
for the economy.

In this thesis, I argue that regulatory central banks have a higher standard for stability than separate regulatory agencies because of the central bank's additional macroeconomic concerns. The results of my analysis indicate that banks supervised by central banks have higher capital ratios and a smaller chance of insolvency, making the regulatory regimes into a tradeoff: regulatory central banks may set lower interest rates, but they are more stringent in regulating financial firms.

Table of Contents

Table of Contents
Introduction................................................................................................1
Background.................................................................................................5
Literature Review ........................................................................................6
Theory......................................................................................................16
The Politics of Financial Regulation................................................................16
Regulatory Central Banks and Separate Supervisory Agencies...........................17
Power of the Banking Sector ........................................................................19
Hypothesis.................................................................................................20
Data..........................................................................................................21
Dependent Variables ...................................................................................21
Independent Variables..................................................................................24
Control Variables.........................................................................................26
Results…………..............................................................................................27
Implications for Future Studies......................................................................32
Conclusion..................................................................................................33
Works Cited................................................................................................34

List of Figures
1. Bar Chart of Risk-Adjusted Capital Ratios in 2005..........................................2
2. Table of Risk-Weighted Assets of the Basel Accord ........................................8
3. Matrix of Capital Framework of Basel III ....................................................12
4. Bar Chart of Tier 1 Equity Capital Ratios in 2005..........................................14
5. Line Graph of Bank Z-Score for UK from 1992-20.........................................24
6. Table Categorizing Location of Regulatory Authority for Countries with SIFIs....25
7. First Table of Regression Results................................................................27
8. Second Table of Regression Results............................................................30
9. Third Table of Regression Results...............................................................31

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