RECAP AND MOTIVATION

As discussed in Chapter 4, the empirical results are broadly consistent with the private interest view of bank supervisory and regulatory policies and generally inconsistent with the public interest view. For instance, the public interest view suggests that supervisory agencies adopt regulatory restrictions on bank activities and limit the entry of new banks to promote the safety and soundness of the banking system. Yet, we find that these policies do not lower the probability of banking crises. Rather, they increase both net interest margins and bank overhead costs, which is more consistent with the private interest hypothesis that narrow interests will use bank regulations to enrich and protect special interests in society. Similarly, the public interest view suggests that countries will empower official supervisory agencies so that they can more effectively monitor banks and induce banks to behave in a socially efficient manner.