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Supervisory Governance, Capture and Non-Performing Loans

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Abstract

Supervisory governance is believed to affect financial stability. While the literature has identified pros and cons of having a central bank or a separate agency responsible for microprudential banking supervision, the advantages of having this task shared by both institutions have received considerably less attention in the literature. Shared supervision has however inherent benefits for the stability of the banking system, as it increases the costs of supervisory capture: capturing a single supervisor, be it the central bank or an agency, has in fact lower costs than capturing two. Nevertheless, while this argument has been proposed theoretically, it has never been tested empirically. This paper fills this void introducing a new dataset on the supervisory governance of 116 countries from 1970 to 2016. It finds that, while nonperforming loans are not significantly affected by supervisory governance per se, they are significantly lower in countries where supervision is shared and the risk of capture is high. This last result, which is robust to a number of controls and robustness checks, proves new evidence in support of the detrimental impact of shared supervision on supervisory capture.

Suggested Citation

  • Nicolò Fraccaroli, 2019. "Supervisory Governance, Capture and Non-Performing Loans," CEIS Research Paper 471, Tor Vergata University, CEIS, revised 08 Oct 2019.
    • Handle: RePEc:rtv:ceisrp:471
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    Cited by:

    1. Beverly Hirtle & Anna Kovner, 2022. "Bank Supervision," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 39-56, November.
    2. Fraccaroli, Nicolò & Sowerbutts, Rhiannon & Whitworth, Andrew, 2025. "Does regulatory and supervisory independence affect financial stability?," Journal of Banking & Finance, Elsevier, vol. 170(C).
    3. Łukasz Sobora, 2024. "Nadzór bankowy i jego miejsce w krajach Unii Europejskiej," Bank i Kredyt, Narodowy Bank Polski, vol. 55(2), pages 163-180.

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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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