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Supervisory governance, capture and non‑performing loans

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  • Fraccaroli, Nicolò

    (Bank of England and University of Rome Tor Vergata)

Abstract
Scholars have long believed the governance of banking supervision to affect financial stability. Although the literature has identified at length the pros and cons of having either a central bank or a separate agency responsible for microprudential banking supervision, the advantages of having this task shared by both institutions (shared supervision) have received considerably less attention. This paper fills this void by comparing the impact of three supervisory governance models — supervision by the central bank, by an agency or by both of them — on bank non‑performing loans. Using a new database on supervisory governance in 116 countries from 1970 to 2016, it finds that supervisory governance per se does not significantly affect non‑performing loans. However, it also finds that, where the risk of capture is high, shared supervision is associated with a significant reduction in non‑performing loans. This is in line with the supervisory capture theory, whereby it is more costly to capture two supervisors rather than one. Overall, these results provide new evidence in support of the relevance of supervisory governance in hampering supervisory capture from the banking sector.

Suggested Citation

  • Fraccaroli, Nicolò, 2019. "Supervisory governance, capture and non‑performing loans," Bank of England working papers 820, Bank of England.
    • Handle: RePEc:boe:boeewp:0820
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    References listed on IDEAS

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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. Łukasz Sobora, 2024. "Nadzór bankowy i jego miejsce w krajach Unii Europejskiej," Bank i Kredyt, Narodowy Bank Polski, vol. 55(2), pages 163-180.
    3. Fraccaroli, Nicolò & Sowerbutts, Rhiannon & Whitworth, Andrew, 2020. "Does regulatory and supervisory independence affect financial stability?," Bank of England working papers 893, Bank of England.

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    More about this item

    Keywords

    Banking supervision; supervisory governance; supervisory capture; non-performing loans;
    All these keywords.

    JEL classification:

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

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