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.

Demystifying gaps and testing for convergence in bank regulations impacting the competitive environment: a case of India and its peers in BRICS

Purpose This study aims to demystify how the critical regulations affecting the bank competition have instituted, amended and fine-tuned over the years in India and its peers in Brazil, Russia, India, China and South Africa (BRICS). The gaps in the regulatory practices influencing bank contestability and competition in BRICS nations are identified. Also, the regulatory convergence is tested by comparing the policies embraced in India vis-à-vis its peer nations. Design/methodology/approach A methodological framework by Barth, Caprio and Levine (2013) is adopted to construct various regulatory indices. The empirical analysis is based on information available in five rounds of the bank regulation and supervision survey conducted in 2000, 2003, 2007, 2011 and 2017 by the World Bank. Findings The empirical findings elucidate that although bank entry regulations have been liberalized over time, the bank contestability seems to be low in the BRICS countries, especially in India. This might be due to the substantial government ownership and the presence of notional powers that are conferred to bank supervisors. On comparing the bank regulations in India vis-à-vis its peers, the author find a strong convergence in licensing requirements for entry into the banking business, foreign bank entry mode, restrictions on conglomerate formation and adoption of prompt corrective action framework. Practical implications The study suggests that future policy initiatives in India need to focus on redesigning the banking structure by reducing the share of state ownership, permitting joint ventures and liberally allowing the entry of new domestic and foreign banks in the industry. In the years to come, regulators in India will continuously face the challenge of fostering bank contestability without jeopardizing bank efficiency and overall stability. Originality/value This study is perhaps first of its kind, which analyzes the inter-temporal changes in regulatory indicators to examine the variations in the competitive environment of the banking markets of BRICS economies in general and India in particular.

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.

A microanalysis of trade finance: German bank entry and coffee exports in Brazil, 1880–1913

The trade-finance nexus has enjoyed increasing interest in recent economic studies, but empirical evidence is scarce and studies from a historical perspective seem missing. This study analyses the effect of German bank entry on Brazilian coffee exports between 1880 and 1913 using firm-level data. I create an original data set on the yearly quantities of exported coffee and the credit received from the German Brasilianische Bank für Deutschland by export houses in Brazil. Using a difference-in-difference approach, I find that Brasilianische eased previously existing credit constraints, and that companies financed by Brasilianische exported significantly more than those that were not.