Don’t Stand So Close to Me: The role of supervisory style in banking stability |
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| Institution: | 1. University of Rome Tor Vergata, Department of Economics and Finance, Via Columbia 2, Italy;2. SDA Bocconi, School of Management, Via Bocconi 8, Italy;3. University of Rome III, Department of Business Studies, Via S. D’Amico 77, Italy;4. University of Parma, Department of Economics, Via Kennedy 6, Italy;5. Tilburg University, Finance Department, Warandelaan 2, The Netherlands;1. Graduate School of Social Sciences, Tokyo Metropolitan University, 1-1 Minami-osawa, Hachioji, Tokyo 192-0397, Japan;2. Graduate School of Economics, Osaka University, 1-7 Machikaneyama, Toyonaka, Osaka 560-0043, Japan;3. Swiss Finance Institute, École Polytechnique Fédérale de Lausanne, 1015 Lausanne, Switzerland;1. School of Mathematical Sciences, University of Science and Technology of China, Hefei, Anhui Province 230026, China;2. Department of Industrial Engineering and Operations Research, Columbia University, New York, NY 10027, United States;1. Imperial College London, South Kensington Campus, London SW7 2AZ, United Kingdom;2. The Business School, University of Auckland, Private Bag 92019, Auckland 1142, New Zealand |
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| Abstract: | With the establishment of an integrated Banking Union, the harmonization of supervisory styles (regulation being equal) plays a central role. Our paper addresses a central question: what supervisory culture has been demonstrated to be most effective at ensuring the stability of European banks? We identify six different supervisory cultures and observe to what extent the words used in public speeches by the deans of the national supervision authority reflect the national cultural values of the Hofstede framework (Hofstede et al., 2010). By analyzing a panel of banks operating in the EU-15 from 1999 and 2011, our paper provides empirical evidence that supervisory culture influences the stability of banks. Our results have important policy implications: our paper is the first to provide empirical evidence of heterogeneity in the supervision styles in Europe and its effect on banking stability. |
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| Keywords: | Supervisory styles Banking stability Banking Union Text analysis |
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