A Global Perspective
Edited by Benton E. Gup
Chapter 8: A Cross-country Analysis of Bank Performance: The Role of External Governance
8. A cross-country analysis of bank performance: the role of external governance James R. Barth, Mark J. Bertus, Valentina Hartarska, Hai Jason Jiang and Triphon Phumiwasana INTRODUCTION Perhaps the most striking feature of the ﬁnancial landscape of the past two decades is the number and severity of banking crises across the globe. While many of these crises occurred in association with currency crises, many did not, being rather the result of, for example, excessive growth in bank credit. Regardless of the causes, over the past decade or so – and particularly in the wake of the East Asian and Russian banking crises of the late 1990s – a strong consensus has emerged among policymakers and industry observers that, fundamentally, both the existing management practices of bankers and bank regulatory and supervisory practices were insuﬃcient to promote well-functioning banking systems. It is by now commonly understood that healthy banking systems require a more insightful approach to regulation and supervision, and that information and discipline from market participants can complement and support sound regulatory and supervisory practices. Such an approach is in the process of being implemented under the New Basel Capital Accord (‘Basel II’). In addition, supervisors around the world are switching from traditional ﬁnancial ratio analysis and ‘counting the cash’ to ‘risk-based’ supervision, a process that requires supervisory authorities to develop both tools and insights that allow them to more accurately assess banks’ risk proﬁles and risk management measures. Beyond this, it is widely recognized that government ownership of banks...
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