A Structural Approach to Financial Stability: On the Beneficial Role of Regulatory Governance

32 Pages Posted: 9 Oct 2013

See all articles by Benjamin Mohr

Benjamin Mohr

FernUniversität in Hagen

Helmut Wagner

University of Hagen (Fernuniversitaet Hagen)

Date Written: January 1, 2013

Abstract

This paper examines whether the governance of regulatory agencies – regulatory governance – is positively related to financial sector soundness. We model regulatory governance and financial stability as latent variables, using a structural equation modeling approach. We include a broad range of variables potentially relevant to financial stability, employing aggregate regulatory, banking and financial, macroeconomic and institutional environment data for a sample of 55 countries over a period from 2001 to 2005. Given the growing importance of macro-prudential analysis, we use the IMF’s financial soundness indicators, a relatively new body of economic statistics which focuses on the banking sector as a whole. Our empirical evidence indicates that regulatory governance has a beneficial influence on financial stability. Thus, our findings support the view that the improvement of regulatory governance arrangements should be a building block of financial reform.

Keywords: banking regulation, governance, financial stability, macro-prudential analysis, structural equation modeling

JEL Classification: G21, G28

Suggested Citation

Mohr, Benjamin and Wagner, Helmut, A Structural Approach to Financial Stability: On the Beneficial Role of Regulatory Governance (January 1, 2013). Available at SSRN: https://ssrn.com/abstract=2241083 or http://dx.doi.org/10.2139/ssrn.2241083

Benjamin Mohr

FernUniversität in Hagen ( email )

Universitaetsstrasse 41
Hagen, 58097
Germany

Helmut Wagner (Contact Author)

University of Hagen (Fernuniversitaet Hagen) ( email )

Universitätsstrasse 41
Feithstrathe 140
D-58084 Hagen
Germany
011-49-2331-987-2640 (Phone)
011-49-2331-987-391 (Fax)

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