Improve bank supervision

Author: Mayes et al. / Fang Wen et al.
Publisher:
Publication Date: 2006-01-01
Features: In the context of globalization, cross-border banking transactions between countries have increased, but they have also become increasingly complex. This book introduces methods to improve the quality and management of banks under such circumstances. The research in this book is based on examples of euro and dollar exchanges between banks in Nordic countries, New Zealand, and other countries. In the book, the authors also describe traditional practices: due to national borders, governments impose restrictions and taxes on transactions between banks in different countries. However, in today's globalized and integrated environment, this practice clearly needs reform. The authors propose three recommendations: increasing the transparency of the banking system, providing the public with accurate information to properly assess banks (i.e., reducing information asymmetry), and implementing efficient operations.
The 1990s financial crises were so frequent that even developed and seemingly stable regions like the Nordic countries were not immune. The risks arising from banks cannot be eliminated, but it is feasible to incentivize banks to operate properly and encourage all banks with certain risks due to poor management to shift to cautious market behavior. Unfortunately, safety nets and bank rescue systems have encouraged risk-taking at the expense of taxpayers and other sectors of society. In the rapidly developing global world, advancements in information technology, communication products, and organizational innovation have made managing the system more challenging. If major banks face difficulties, the consequences will inevitably be severe. Solving these problems requires cross-border cooperation and access to comprehensive information. Drawing on the experiences of banks in the EU and the U.S., Mayes, Halme, and Liuksila propose strengthening bank supervision through an integrated approach to address common challenges faced by banks in different countries. Their recommendations include: establishing transparent corporate structures; enhancing information disclosure to enable the market to assess banks; and adopting effective measures to allow banks to exit at acceptable costs.