Data Set - Global Banking Regulation (Lee and Lu)

Data Set: Global Banking Regulation and Supervision

Methodology

Lee and Lu (2015) used this data set to examine the impact of bank regulation and supervision on bank development, efficiency, and fragility over the period of 1999—2011. This recent paper provides information on those specific regulatory and supervisory practices that work best in light of what was learned from the recent financial crisis. Overall, their findings support Basel II's first and third pillars: capital requirements and private monitoring.

Sources:

World Bank. Bank Regulation and Supervision. Updated 2012.

Barth, J., Caprio, G. and Levine, R. (2013), "Bank regulation and supervision in 180 countries from 1999 to 2011," Journal of Financial Economic Policy, Vol. 5 No. 2, pp. 111-219.

World Bank. Global Financial Development Database. Updated September 2015.

Cihak, M., Demirgüç-Kunt, A., Feyen, E., and Levine, R. (2012), "Benchmarking financial systems around the world," World Bank Policy Research Working Paper No. 6175.

Laeven, L. and Valencia, F. (2013), "Systemic banking crises database," International Monetary Fund Economic Review Vol. 61 No. 2, pp. 225-270.

Kaufman, Daniel and Aart Kray. Worldwide Governance Indicators. World Bank.

Kaufmann, D., Kraay, A., and Mastruzzi, M., (2010), "The Worldwide Governance Indicators: Methodology and analytical issues," Work Bank Policy Research Working Paper No. 5430.

LaPorta, R., Lopez-do-Silanes, F., Shleifer, A. and Vishny, R.W. (1998), "Law and Finance," Journal of Political Economy Vol. 106 No. 6, pp. 1113-1155.

Category
Variable
Definition
Scale
General Country Descriptors
Country Code World Bank country code N/A
Region World Bank region N/A
Income Group World Bank income group N/A
Bank Activity Regulatory Variables
Securities Activities The extent to which banks may engage in underwriting, brokering and dealing in securities, and all aspects of the mutual fund industry 1—4 (Higher values indicate more restrictive)
Insurance Activities The extent to which banks may engage in insurance underwriting and selling 1—4 (Higher values indicate more restrictive)
Real Estate Activities The extent to which banks may engage in real estate investment, development and management 1—4 (Higher values indicate more restrictive)
Overall Restrictions on Banking Activities Securities Activities + Insurance Activities + Real Estate Activities 3—12 (Higher values indicate more restrictive)
Financial Conglomerate Variables
Bank Owning Nonfinancial Firms The extent to which banks may own and control nonfinancial firms 1—4 (Higher values indicate more restrictive)
Nonfinancial Firms Owning Banks The extent to which nonfinancial firms may own and control banks 1—4 (Higher values indicate more restrictive)
Nonbank Financial Firms Owning Banks The extent to which nonbank financial firms may own and control banks 1—4 (Higher values indicate more restrictive)
Overall Financial Conglomerates Restrictiveness Bank Owning Nonfinancial Firms + Nonfinancial Firms Owning Banks + Nonbank Financial Firms Owning Banks 3—12 (Higher values indicate more restrictive)
Competition Regulatory Variables
Limitations on Foreign Bank Entry/Ownership Whether foreign banks may own domestic banks and whether foreign banks may enter a country's banking industry 0—4 (Lower values indicate greater stringency)
Entry into Banking Requirements Whether various types of legal submissions are required to obtain a banking license 0—8 (Higher values indicate greater stringency)
Fraction of Entry Applications Denied The degree to which applications to enter banking are denied 0—1 (Percent, 0-100%)
Domestic Denials The degree to which domestic applications to enter banking are denied 0—1 (Percent, 0-100%)
Foreign Denials The degree to which foreign applications to enter banking are denied 0—1 (Percent, 0-100%)
Capital Regulatory Variables
Overall Capital Stringency Whether the capital requirement reflects certain risk elements and deducts certain market value losses from capital before minimum capital adequacy is determined 0—7 (Higher values indicate greater stringency)
Initial Capital Stringency Whether certain funds may be used to initially capitalize a bank and whether they are officially 0—3 (Higher values indicate greater stringency)
Capital Regulatory Index Overall Capital Stringency + Initial Capital Stringency 0—10 (Higher values indicate greater stringency)
Official Supervisory Action Variables
Official Supervisory Power Whether the supervisory authorities have the authority to take specific actions to prevent and correct problems 0—14 (Higher values indicate greater power)
Prompt Corrective Power Whether a law establishes predetermined levels of bank solvency deterioration that force automatic actions, such as intervention 0—6 (Higher values indicate more promptness in responding to problems)
Restructuring Power Whether the supervisory authorities have the power to restructure and reorganize a troubled bank 0—6 (Higher values indicate greater restructuring power)
Declaring Insolvency Power Whether the supervisory authorities have the power to declare a deeply troubled bank insolvent 0—4 (Higher values indicate greater power)
Supervisory Forbearance Discretion Whether the supervisory authorities may engage in forbearance when confronted with violations of laws and regulations or other imprudent behavior 0—4 (Higher values indicate less supervisory discretion)
Court Involvement The degree to which the court dominates the supervisory authority 0—3 (Higher values indicate less supervisory discretion)
Loan Classification Stringency The classification of loans in arrears as sub-standard, doubtful and loss Pure number (Minimum number of days beyond which a loan in arrears must be classified as substandard, doubtful, then loss)
Provisioning Stringency The minimum required provisions as loans become sub-standard, doubtful and loss Pure number (Sum of the minimum required provisioning percentages when a loan is successfully classified as substandard, doubtful, and loss)
Diversification Index Whether there are explicit, verifiable, quantifiable guidelines for asset diversification, and banks are allowed to make loans abroad 0—2 (Higher values indicate more diversification)
Official Supervisory Structural Variables
Supervisor Tenure The average tenure of a professional bank supervisor Pure number (Years)
Independence of Supervisory Authority-Political The degree to which the supervisory authority is independent within the government from political influence

0—1 (Higher values indicate greater independence)
Independence of Supervisory Authority-Bank The degree to which the supervisory authority is protected by the legal system from the banking industry

0—1 (Higher values indicate greater independence)
Independence of Supervisory Authority-Fixed Term The degree to which the supervisory authority is able to make decisions independently of political considerations

0—1 (Higher values indicate greater independence)
Independence of Supervisory Authority-Overall The degree to which the supervisory authority is independent from the government and legally protected from the banking industry

0—3 (Higher values indicate greater independence)
Multiple Supervisor This variable indicates whether there is a single official regulatory of banks, or whether multiple supervisor share responsibility for supervising the nation's banks 0—1 (Yes = 1, No = 0)
Single vs. Multiple Financial Supervisory Authority This variable indicates whether or not there is a single financial supervisory authority 0—1 (Yes = 1, No = 0)
Private Monitoring Variables
Certified Audit Required Whether there is a compulsory external audit by a licensed or certified auditor 0—1 (Yes = 1, No = 0)
Percent of 10 Biggest Banks Rated by International Rating Agencies The percentage of the top ten banks that are rated by international rating agencies Pure number (Percent, 0-100%)
Percent of 10 Biggest Banks Rated by Domestic Rating Agencies The percentage of the top ten banks that are rated by domestic rating agencies Pure number (Percent, 0-100%)
No Explicit Deposit Insurance Scheme Whether there is an explicit deposit insurance scheme and whether depositors were fully compensated the last time a bank failed 0—1 (Higher values indicate more private supervision)
Bank Accounting Whether the income statement includes accrued or unpaid interest or principal on nonperforming loans and whether banks are required to produce consolidated financial statements 0—4 (Higher values indicate more informative bank accounts)
Private Monitoring Index Measures whether there incentives/ability for the private monitoring of firms, with higher values indicating more private monitoring 0—12 (Higher values indicate more private oversight)
Deposit Insurance Scheme Variables
Deposit Insurer Power Whether the deposit insurance authority has the authority to make the decision to intervene in a bank, take legal action against bank directors or officials, and has ever taken any legal action against bank directors or officers 0—4 (Higher values indicate more power)
Deposit Insurance Funds-to-Total Bank Asset The size of the deposit insurance fund relative to total bank assets Pure number (Ratio)
Funding with Insured Deposits The degree to which moral hazard exists Pure number (Percent; higher values indicate more moral hazard)
Various Factors Mitigating Moral Hazard Degree to which actions taken to mitigate moral hazard 0—3 (Higher values indicate greater mitigation of moral hazard)
Market Structure Indicators (from Journal of Financial Intermediation, JFI)
Bank Concentration (Deposit) The degree of concentration of deposits in the 5 largest banks Pure number (Percent)
Bank Concentration (Asset) The degree of concentration of assets in the 5 largest banks Pure number (Percent)
Foreign-Owned Banks The extent to which the banking system's assets are foreign owned Pure number (Percent)
Government-Owned Banks The extent to which the banking system's assets are government owned Pure number (Percent)
External Governance Variables (from Rethinking Bank Regulation book)
Strength of External Audit The effectiveness of external audits of banks 0—7 (Higher values indicate better strength of external audit)
Financial Statement Transparency The transparency of bank financial statements practices 0—6 (Higher values indicate better transparency)
Accounting Practices The type of accounting practices used 0—1 (Higher values indicate better practices)
External Ratings and Creditor Monitoring The evaluations by external rating agencies and incentives for creditors of the bank to monitor bank performance 0—5 (Higher values indicate better credit monitoring)
External Governance Index Strength of External Audit + Financial Statement Transparency + Accounting Practices + External Ratings and Creditor Monitoring + External Governance Index 0—19 (Higher values indicate better corporate governance)
Country Descriptors
GDP Gross Domestic Product Pure Number
GNP Gross National Savings Pure Number
Population Country population Pure Number
Legal Foundation
English English Common Law Dummy 1 = yes, 0 = no
French French Civil Law Dummy 1 = yes, 0 = no
Socialist Socialist Law Dummy 1 = yes, 0 = no
German German Civil Law Dummy 1 = yes, 0 = no
Scandinavian Scandinavian Civil Law Dummy 1 = yes, 0 = no
Religion
Protestant Protestant Fraction of Population Percentage
Catholic Catholic Fraction of Population Percentage
Muslim Muslim Fraction of Population Percentage
Others Other Fraction of the Population Percentage
Global Financial Development Indicators
Bank Credit to GDP (%) Private Credit by Deposit Money Banks to GDP (%) Percentage
Central Bank Assets to GDP (%) Central bank assets to GDP (%) Percentage
Mutual Fund Assets to GDP (%) Mutual fund assets to GDP (%) Percentage
Insurance Company Assets to GDP (%) Insurance company assets to GDP (%) Percentage
International Debt Issues to GDP (%) International Debt Issues to GDP (%) Percentage
Bank Net Interest Margin Bank net interest margin Pure Number
Bank Overhead Costs to Total Assets (%) Bank Overhead costs to total assets (%) Percentage
ROA Bank Return on Assets (%, after tax) Percentage
ROE Bank Return on Equity (%, after tax) Percentage
Bank Cost to Income Ratio (%) Bank cost to income ratio (%) Percentage
Bank Z-Score Probability of default of a country's commercial banking system Higher z-score indicates a lower probability of bank insolvency
Bank Nonperforming Loans to Gross Loans (%) Bank nonperforming loans to gross loans (%) Percentage
Bank Credit to Bank Deposits (%) Bank credit to bank deposits (%) Percentage
Bank Concentration Bank concentration (%) Assets of three largest commercial banks as a share of total commercial banking assets Percentage
H Statistic A measure of the degree of competition in the banking market 0—1 Higher values are associated with more competitive banking systems
Lerner Index A measure of market power in the banking market 0—1 Higher values signal less competition
Boone Indicator A measure of degree of competition based on profit-efficiency in the banking market More negative indicates higher level of competition
World Governance Indicators
Voice and Accountability Perceptions of the extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media Scale of -2.5 to 2.5, with higher values corresponding to better governance
Political Stability Perceptions of the likelihood of plitical instability and/or politically motivated violence, including terrorism. Scale of -2.5 to 2.5, with higher values corresponding to better governance
Government Effectiveness Perceptions of the quality of public services, the quality of civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. Scale of -2.5 to 2.5, with higher values corresponding to better governance
Regulatory Quality Perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. Scale of -2.5 to 2.5, with higher values corresponding to better governance
Rule of Law Perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. Scale of -2.5 to 2.5, with higher values corresponding to better governance
Control Corruption Perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. Scale of -2.5 to 2.5, with higher values corresponding to better governance