This paper uses our new database on bank regulation and supervision in 107 countries to assess the relationship between specific regulatory and supervisory practices and banking-sector development, efficiency, and fragility. The paper examines: (i) regulatory restrictions on bank activities and the mixing of banking and commerce; (ii) regulations on domestic and foreign bank entry; (iii) regulations on capital adequacy; (iv) deposit insurance system design features; (v) supervisory power, independence, and resources; (vi) loan classification stringency, provisioning standards, and diversification guidelines; (vii) regulations fostering information disclosure and private-sector monitoring of banks; and (viii) government ownership. The results, albeit tentative, raise a cautionary flag regarding government policies that rely excessively on direct government supervision and regulation of bank activities. The findings instead suggest that policies that rely on guidelines that (1) force accurate information disclosure, (2) empower private-sector corporate control of banks, and (3) foster incentives for private agents to exert corporate control work best to promote bank development, performance and stability.

This paper provides a detailed examination of the cost imposed by thrift institutions resolved during the period 1980-88. A simple model is presented to explain the cost of resolution. This model is tested empirically with a comprehensive data set that permits us to avoid some of the econometric problems present in earlier studies. The empirical evidence suggests that the model that explains resolution costs in the late 1980s is significantly different from the model for either the middle or early 1980s. This evidence is consistent with the changing nature of the thrift crisis and changes in the regulator's closure rule. Our econometric evidence, moreover, is consistent with the hypothesis that, for troubled institutions, tangible net worth systematically understates market-value net worth. In addition, the importance of including time effects as well as institution effects as determinants of the cost of resolution is revealed.

This study reports estimates of the marginal benefits and costs of increasing the regulatory minimum bank equity-to-asset “leverage ratio” from 4 to 15 percent. Benefits arise from reducing the probability of a banking crisis. Costs arise from reduced lending, should banks pass off higher equity costs onto borrowers. Net benefits increase with a higher discount rate, a smaller tax advantage of debt, a lower non-financial corporate debt-to-capital ratio, a higher cost of crises, a longer duration of crises or if crises have some permanent effects. Baseline estimates indicate that the benefits equal costs at 19 percent.

In a recent issue of this Review (1983), Roger Kormendi relied upon the work of Martin Bailey (1962, 1971) and Robert Barro (1974) develop an alternative to modeling private sector consumptionsaving behavior based on rational evaluation of the consequences of government fiscal policy (p. 995). Briefly, this involves determining to what extent government spending substitutes for private consumption, and to what extent government debt is net wealth and thereby also affects private consumption. This consolidated approach to examining private sector consumption is not only novel, but appears at a time when there is widespread interest as well as controversy over the effects of government fiscal policy. It therefore seems only appropriate to examine further the results obtained by Kormendi-not to criticize them but rather to explore their robustness. This comment specifically explores the sensitivity of Kormendi's results to alternative time periods of estimation, to the differentiation between federal debt and state and local government debt, and to the measurement of government debt-particularly par vs. market value.

A survey of the empirical work involving interest rates indicates an almost universal use of seasonally unadjusted rates, apparently due to a conviction that seasonal factors are not important in interest rates. Studies by V. Kerry Smith and Richard Marcis (1972), Stanley Diller (1969) and William Gibson (1970), however, provide evidence showing that interest rates exhibit seasonal variation. Seasonality in interest rates merits careful consideration for at least two reasons. First, as noted by Gibson, An aim of the Federal Reserve System is to accommodate seasonal swings in the financial needs of trade, and the system tries to do this by removing seasonal fluctuations from interest rates. The seasonal variations remaining in interest rates suggest that the system is not wholly successful in these efforts. . (Gibson, 1970, p. 442). Second, from an econometric point of view, any model, such as a money demand model, which contains an interest rate as an independent variable should also contain seasonal dummy variables; otherwise, the coefficient of the interest rate variable may be both biased and inconsistent.' These issues underscore the importance of determining whether there is seasonality in interest rates. In this regard, it is interesting to note that the Federal Reserve does not report seasonally adjusted rates, apparently because the Board does not recognize the existence of a seasonal component. The purpose of this paper is to provide additional information regarding seasonality in interest rates. Unlike earlier studies, both daily and monthly data are analyzed. And, whereas Smith and Marcis employed spectral analysis to detect seasonality, ordinary least squares techniques with seasonal dummies are employed here. Using this technique, we find, in contrast to the findings reported by other investigators, no evidence of a significant seasonal component in monthly rates. Seasonality is, however, present in the daily rate. The plan of the remainder of the paper is as follows. In section II, the magnitude and the importance of seasonality in three interest rates are assessed. Section III contains a discussion of seasonal variation in a short-term rate employing daily as opposed to monthly data. A summary and the conclusions are presented in the last section.