Does regulatory governance matter for financial system stability?”, IMF Working Paper WP/04/89 Davis E Philip

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper provides empirical evidence that the quality of regulatory governance— governance practices adopted by financial system regulators and supervisors—matters for financial system soundness. The paper constructs indices of financial system soundness and regulatory governance, based on country data collected from the Financial Sector Assessment Program (FSAP). Regression results indicate that regulatory governance has a significant influence on financial system soundness, along with variables reflecting macroeconomic conditions, the structure of the banking system, and the quality of political institutions and public sector governance. The results also indicate that good public sector governance amplifies the impact of regulatory governance on financial system soundness