Table A2 Measurement of bank regulatory... | Emerald Publishing

Table A2

Measurement of bank regulatory and supervisory indices

Index	Sub-components	Qualification	Range
Entry barrier	Limitations on foreign bank ownership of domestic banks	Are foreign entities prohibited from entering through (a) Acquisition? (b) Subsidiary? (c) Branch? d) Joint Venture? [Yes = 1; No = 0; for each]	0–4
Entry barrier	Entry into banking requirements	Are the following legal submissions required to obtain a banking license: (a) Draft bylaws? (b) Intended organization chart? (c) Financial projections? (d) Financial information on main potential shareholders? (e) Background/experience of future directors? (f) Background/experience of future managers? (g) Sources of funds to be disbursed in the capitalization of a new bank? (h) Market differentiation intended for the new bank? [Yes = 1; No = 0; for each]	0–8
Mixing of banking and commerce restriction	Bank ownership of non-financial Firms	To what extent can banks own and control non-financial firms? [Unrestricted = 1 = a bank may own 100% of the equity in any nonfinancial firm; Permitted = 2 = a bank may own 100% of the equity of a nonfinancial firm, but ownership is limited based on a bank's equity capital; Restricted = 3 = a bank can only acquire less than 100% of the equity in a nonfinancial firm; and Prohibited = 4 = a bank may not acquire any equity investment in a nonfinancial firm whatsoever]	1–4
	Non-financial firm ownership of banks	To what extent can non-financial firms own and control banks? [Unrestricted = 1 = a nonfinancial firm may own 100% of the equity in a bank; Permitted = 2 = unrestricted with prior authorization or approval; Restricted = 3 = limits are placed on ownership, such as a maximum percentage of a bank's capital or shares; and Prohibited = 4 = no equity investment in a bank]	1–4
	Non-bank financial firms owning banks	The extent to which non-bank financial firms may own and control banks? [Unrestricted = 1 = a nonbank financial firm may own 100% of the equity in a bank; Permitted = 2 = unrestricted with prior authorization or approval; Restricted = 3 = limits are placed on ownership, such as a maximum percentage of a bank's capital or shares; and Prohibited = 4 = no equity investment in a bank]	1–4
Activity restriction	Securities Activities	To what extent can banks engage in the following activities: a) Securities? b) Insurance? c) Real estate? [Unrestricted = 1 = full range of activities can be conducted directly in the bank; Permitted = 2 = full range of activities can be conducted, but some or all must be conducted in subsidiaries; Restricted = 3 = less than a full range of activities can be conducted in the bank or subsidiaries; and Prohibited = 4 = the activity cannot be conducted in either the bank or subsidiaries; for each]	1–4
	Insurance Activities		1–4
	Real Estate Activities		1–4
Capital regulation	Overall capital stringency	Overall capital requirement questions: (a) Is it risk-weighted in line with Basle guidelines? (b) Does the ratio vary with a bank's credit risk? (c) Does the ratio vary with market risk? (d) Before minimum capital adequacy is determined, which items are deducted from capital: (1) Market value of loan losses? (2) Unrealized securities losses? (3) Unrealized foreign exchange losses? [Yes = 1; No = 0; for each]	0–6
Capital regulation	Initial capital stringency	Questions: (a) Are the sources of funds to be used as capital verified by authorities? [Yes = 1; No = 0] (b) Can assets other than cash/government securities be used to increase capital? (c) Can borrowed funds be used? [Yes = 0; No = 1; for (b) and (c)]	0–3
Supervisory power	Official supervisory power	Questions: (a) Can supervisors meet external auditors to discuss report without bank approval? (b) Are auditors legally required to report misconduct by managers/directors to supervisory agency? (c) Can legal action against external auditors be taken by the supervisor for negligence? (d) Can supervisors force banks to change the internal organizational structure? (e) Are off-balance sheet items disclosed to supervisors? (f) Can the supervisory agency order directors/management to constitute provisions to cover actual/potential losses? (g) Can the supervisory agency suspend the director's decision to distribute: (1) dividends? (2) bonuses? (3) management fees? (h) Can the supervisory agency supersede bank shareholder rights and declare the bank insolvent? (i) Does banking law allow the supervisory agency to suspend some or all ownership rights of a problem bank? (j) Regarding bank restructuring and reorganization, can supervisory agency or any government agency do the following: (1) supersede shareholder rights? (2) Remove and replace management? (3) Remove and replace directors? [Yes = 1; No = 0; for each]	0–14

Index	Sub-components	Qualification	Range
Entry barrier	Limitations on foreign bank ownership of domestic banks	Are foreign entities prohibited from entering through (a) Acquisition? (b) Subsidiary? (c) Branch? d) Joint Venture? [Yes = 1; No = 0; for each]	0–4
Entry barrier	Entry into banking requirements	Are the following legal submissions required to obtain a banking license: (a) Draft bylaws? (b) Intended organization chart? (c) Financial projections? (d) Financial information on main potential shareholders? (e) Background/experience of future directors? (f) Background/experience of future managers? (g) Sources of funds to be disbursed in the capitalization of a new bank? (h) Market differentiation intended for the new bank? [Yes = 1; No = 0; for each]	0–8
Mixing of banking and commerce restriction	Bank ownership of non-financial Firms	To what extent can banks own and control non-financial firms? [Unrestricted = 1 = a bank may own 100% of the equity in any nonfinancial firm; Permitted = 2 = a bank may own 100% of the equity of a nonfinancial firm, but ownership is limited based on a bank's equity capital; Restricted = 3 = a bank can only acquire less than 100% of the equity in a nonfinancial firm; and Prohibited = 4 = a bank may not acquire any equity investment in a nonfinancial firm whatsoever]	1–4
	Non-financial firm ownership of banks	To what extent can non-financial firms own and control banks? [Unrestricted = 1 = a nonfinancial firm may own 100% of the equity in a bank; Permitted = 2 = unrestricted with prior authorization or approval; Restricted = 3 = limits are placed on ownership, such as a maximum percentage of a bank's capital or shares; and Prohibited = 4 = no equity investment in a bank]	1–4
	Non-bank financial firms owning banks	The extent to which non-bank financial firms may own and control banks? [Unrestricted = 1 = a nonbank financial firm may own 100% of the equity in a bank; Permitted = 2 = unrestricted with prior authorization or approval; Restricted = 3 = limits are placed on ownership, such as a maximum percentage of a bank's capital or shares; and Prohibited = 4 = no equity investment in a bank]	1–4
Activity restriction	Securities Activities	To what extent can banks engage in the following activities: a) Securities? b) Insurance? c) Real estate? [Unrestricted = 1 = full range of activities can be conducted directly in the bank; Permitted = 2 = full range of activities can be conducted, but some or all must be conducted in subsidiaries; Restricted = 3 = less than a full range of activities can be conducted in the bank or subsidiaries; and Prohibited = 4 = the activity cannot be conducted in either the bank or subsidiaries; for each]	1–4
	Insurance Activities		1–4
	Real Estate Activities		1–4
Capital regulation	Overall capital stringency	Overall capital requirement questions: (a) Is it risk-weighted in line with Basle guidelines? (b) Does the ratio vary with a bank's credit risk? (c) Does the ratio vary with market risk? (d) Before minimum capital adequacy is determined, which items are deducted from capital: (1) Market value of loan losses? (2) Unrealized securities losses? (3) Unrealized foreign exchange losses? [Yes = 1; No = 0; for each]	0–6
Capital regulation	Initial capital stringency	Questions: (a) Are the sources of funds to be used as capital verified by authorities? [Yes = 1; No = 0] (b) Can assets other than cash/government securities be used to increase capital? (c) Can borrowed funds be used? [Yes = 0; No = 1; for (b) and (c)]	0–3
Supervisory power	Official supervisory power	Questions: (a) Can supervisors meet external auditors to discuss report without bank approval? (b) Are auditors legally required to report misconduct by managers/directors to supervisory agency? (c) Can legal action against external auditors be taken by the supervisor for negligence? (d) Can supervisors force banks to change the internal organizational structure? (e) Are off-balance sheet items disclosed to supervisors? (f) Can the supervisory agency order directors/management to constitute provisions to cover actual/potential losses? (g) Can the supervisory agency suspend the director's decision to distribute: (1) dividends? (2) bonuses? (3) management fees? (h) Can the supervisory agency supersede bank shareholder rights and declare the bank insolvent? (i) Does banking law allow the supervisory agency to suspend some or all ownership rights of a problem bank? (j) Regarding bank restructuring and reorganization, can supervisory agency or any government agency do the following: (1) supersede shareholder rights? (2) Remove and replace management? (3) Remove and replace directors? [Yes = 1; No = 0; for each]	0–14

Source(s): Barth et al. (2001, 2004, 2008, 2013), Cihak et al. (2013), and Anginer et al. (2019)