Examining the Development of Banking Sector Regulations and Supervision Practices across BRICS and G7 Countries

The study examines the development in the banking regulatory practices across BRICS nations over the period 2000–2019. The convergence and sustainability of the regulatory framework in BRICS nations to G7 norms have also been assessed. The analysis is based on five key regulatory measures, which include activity restrictions, entry requirements for a new bank, foreign bank entry restrictions, capital stringency, and deposit insurer powers. The study constructs the regulatory indexes based on the central bank responses to the Bank Regulation and Supervision Survey (BRSS) conducted by the World Bank. To estimate the indexes, the study follows Barth, Caprio, and Levine guidelines. The result reveals that the regulators of BRICS countries impose higher restrictions on bank activities than in the G7 nations. Furthermore, the United Kingdom and Brazilian bank regulators are more liberal and imposed fewer restrictions on insurance activity only. In addition, getting a bank license is tough in both regions. Regulators allow only fit and proper applicants into the banking domain. Furthermore, the authors find that the requirements for capital are becoming more restricted in BRICS nations between 2003 and 2019 to align with Basel capital accords, relative to G7 nations. The study documents a convergence in the banking licensing requirements, and limitations on foreign bank entry and official supervisory powers in the BRICS countries with the G7 nations. The study suggests that the regulators must offer freedom to banks’ activities with increasing supervision, and it boosts the competition in the banking sector and enhances customer welfare. Furthermore, the policymakers need to redesign the deposit insurance mechanism and equip deposit insurers with more powers to enhance the safety of depositors’ interests and minimize the moral hazards in the banking sector in both regions.

Repressed banking industry: The context of emerging market

The present paper uses a qualitative approach with data obtained from secondary sources on the sequence and timing of financial liberalization in Ethiopia. The approach is purely qualitative, which simply examines the sequence of financial sector liberalization measures introduced in Ethiopia between 1992 and 2014. The study aims to identify the financial sector liberalization measures introduced and critically evaluate the timing and sequence of these programs implemented in Ethiopia. In light of documented empirical findings, it was found that the financial liberalization programme in Ethiopia was not properly and timely sequenced, and as a result, the Ethiopian financial sector has remained underdeveloped when compared to sub-Saharan African standards and its neighbouring countries. The regulatory fences, especially the restriction of foreign bank entry, should be seriously reconsidered and such fences shall be soon uprooted and steps towards the establishment of the financial market should be taken.

Bank Competition, Foreign Bank Entry, and Risk-Taking Behavior: Cross Country Evidence

This unique study examines the interactive role of bank competition and foreign bank entry in explaining the risk-taking of banks over the globe. We used cross-country data for the banking sector from 2000 to 2016. Using the pooled regression model and Two-stage Least Squares model (2SLS with Generalized Method of Moments GMM), we document that foreign bank entry decreases the risk-taking behavior of the banks to a certain level and exhibits an inverted U-shaped relation with financial stability. Furthermore, the joint effect of bank competition and foreign bank entry brings financial fragility because host banks tend to make risky investments due to undue competition induced by foreign bank entry. We support the competition–fragility hypothesis when foreign bank entry goes beyond a certain threshold. Our results also suggest that restrictions on bank activities and capital regulation stringency reduce the level of the risk factor. We also applied various robustness tests, which further confirm our mainstream results. Our findings have policy implications for foreign investors and regulatory authorities.