The paper considers the generic arguments for and against the creation of a unified regulatory agency, covering each of the main types of financial institutions (banks, insurers and securities firms). The strongest arguments for unification are the enhanced oversight of financial conglomerates...

This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision (BCPs) improves bank soundness. The authors find a significant and positive relationship between bank soundness (measured with Moody's financial strength ratings) and compliance with principles...

In this paper, we develop multi-country indices of financial system stress and quality of financial policies and use them in regression analysis of the determinants of financial stress. We find that countries with higher quality of financial policies are better able to contain the effects of...

This study reinvestigates the theoretical relationship between competition in banking and banks' exposure to risk of failure. There is a large existing literature that concludes that when banks are confronted with increased competition, they rationally choose more risky portfolios. We briefly...

A model of the domestic financial intermediation of foreign capital inflows based on agency costs is developed for studying financial crises in emerging markets. In equilibrium, the banking system becomes progressively more fragile under imperfect prudential regulation and public sector loan...

Dollarization of liabilities (DL) has emerged as a key factor in explaining the vulnerability of emerging markets to financial and currency crises. "Usual suspects" of causing DL comprise "fatalistic" determinants such as a long history of unsound macroeconomic policies and development and...

A well-designed deposit insurance system (DIS) will provide incentives for citizens to keep the financial system sound. However, a poorly designed DIS can foster a financial crisis. This paper, therefore, makes recommendations for creating and running a limited, incentive-compatible, DIS. The...

Given the rapid evolution of the U.S. financial sector and attendant regulatory challenges, this paper explores ways to fine-tune U.S. oversight arrangements. It surveys the financial landscape, separating a highly regulated, multi-business, and (in terms of relative asset holdings) shrinking...

This paper introduces a new database of financial reforms, covering 91 economies over 1973–2005. It describes the content of the database, the information sources utilized, and the coding rules used to create an index of financial reform. It also compares the database with other measures of...

The scramble to expand deposit guarantees in Europe in response to recent financial turmoil confirms that the on-going integration of European financial markets requires closer coordination of prudential policies and financial safety nets. We study the optimal design of prudential supervision...