Bank Supervision and Corruption in Lending

45 Pages Posted: 1 Sep 2005 Last revised: 26 Dec 2022

See all articles by Thorsten Beck

Thorsten Beck

City University London - The Business School; Tilburg University - European Banking Center, CentER

Asli Demirgüç-Kunt

World Bank

Ross Levine

Stanford University; National Bureau of Economic Research (NBER)

Date Written: August 2005

Abstract

Which commercial bank supervisory policies ease - or intensify - the degree to which bank corruption is an obstacle to firms raising external finance? Based on new data from more than 2,500 firms across 37 countries, this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms' financing obstacles. We find that the traditional approach to bank supervision, which involves empowering official supervisory agencies to directly monitor, discipline, and influence banks, does not improve the integrity of bank lending. Rather, we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance. In extensions, we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions.

Suggested Citation

Beck, Thorsten and Demirgüç-Kunt, Asli and Levine, Ross, Bank Supervision and Corruption in Lending (August 2005). NBER Working Paper No. w11498, Available at SSRN: https://ssrn.com/abstract=775988

Thorsten Beck

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Ross Levine (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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