Banking Regulation and Supervision, and the Output Cost of Systemic Banking Crises in Developed and Emerging Countries

Recessions associated with banking crises are deeper and longer than other recessions. While banking crises are often believed to reflect defects in regulation and supervision, regulatory and supervisory frameworks may also determine the shape of subsequent recoveries. Combining new databases covering 147 banking crises between 1970-2011 and banking regulation in 180 countries, this study investigates the relationship between output losses following systemic banking crises, and banking regulation and supervision. Our main finding shows that the presence of highly independent supervisors is associated with more severe crises. We also found that higher restrictions on financial conglomerates reduce the severity of crises in several specifications. Finally, we found evidence suggesting that the same regulatory and supervisory frameworks are associated with different outcomes in different levels of economic development