Journal of Financial Stability 9 (2013) 733–746 Contents lists available at ScienceDirect Journal of Financial Stability journal homepage: www.elsevier.com/locate/jfstabil Bank regulation and supervision in the context of the global crisis Martin Cihak, Asli Demirgüc ¸ -Kunt, Maria Soledad Martinez Peria ∗ , Amin Mohseni-Cheraghlou World Bank – Development Research Group, 1818 H Street N.W., Washington, DC 20433, United States a r t i c l e i n f o Article history: Received 4 April 2013 Received in revised form 1 September 2013 Accepted 8 October 2013 Available online 26 October 2013 JEL classification: G10 G20 E58 Keywords: Banking Regulation Supervision Survey a b s t r a c t We provide novel evidence on regulatory and supervisory practices around the world in the context of the global financial crisis, using data from a new World Bank survey covering 143 countries. Analyzing differences between crisis and non-crisis countries, we find that crisis countries had less stringent and more complex definitions of capital but exhibited lower actual capital ratios, faced fewer restrictions on non-bank activities, were less strict in the regulatory treatment of bad loans, were less able to demand banks to adjust their equity, provisions or compensation schemes, and had greater disclosure require- ments but weaker incentives for private agents to monitor banks. Comparing regulatory and supervisory practices before and after the global crisis, there is evidence of few changes. While capital ratios increased, bank governance and resolution regimes were strengthened, private sector incentives to monitor banks deteriorated. © 2013 Elsevier B.V. All rights reserved. 1. Introduction Bank regulation and supervision has been the subject of much recent debate and attention, due in large part to the global financial crisis that started in the late 2000s. 1 The debate is still very much ongoing, with the crisis still not fully over yet, and the recovery being weak at best. A number of studies have pointed to weak- nesses in regulation and supervision as one of the factors leading to the crisis (Dan, 2010; Lau, 2010; Levine, 2010; Merrouche and Nier, 2010). The crisis raised important questions on the appropri- ateness of the regulatory and supervisory approaches pursued in the run-up to the crisis, prompting regulators to consider changes in regulation and supervision. Despite the interest in the topic and numerous initiatives on the global regulatory framework (such as those by the Basel Committee on Banking Supervision), there is a surprising lack of consistent and up-to-date information on the reg- ulatory and supervisory approaches employed in countries around ∗ Corresponding author. Tel.: +1 202 458 7341. E-mail address: mmartinezperia@worldbank.org (M.S. Martinez Peria). 1 See Brunnermeier (2009) and Taylor (2009) for an account of the events and factors leading to the liquidity and credit crunch of 2007–2008. the world on the eve of the crisis and the changes brought about by this significant event. This paper addresses two important questions related to bank regulation and supervision in the context of the recent global cri- sis. First, how did the regulatory and supervisory frameworks of countries that were directly hit by the global financial crisis differ from the rest of the world? Second, how have national regula- tory and supervisory practices changed during the global financial crisis? To address these questions, the paper performs a series of statistical tests using a new installment of the World Bank’s Bank Regulation and Supervision Survey. The survey, conducted in 2011–2012, is an updated and substantially expanded version of earlier surveys of the same name, released by the World Bank in 2001, 2003, and 2007. 2 The current, fourth iteration of the survey provides detailed information on bank regulation and supervision for 143 jurisdictions in 2008–2010, allowing us to examine the recent state of bank regulation and supervision in a wide range of countries and to compare it to the pre-crisis situation. Based on a series of univariate tests and probit estimations, we find significant differences between crisis and non-crisis countries 2 The three previous surveys captured information as of 1999, 2001, and 2005, respectively (Barth et al., 2001). 1572-3089/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.jfs.2013.10.002