Improving Banking Supervisory Mechanisms
In the OIC Member Countries
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income categories, high-income, upper-middle income, lower-middle income and low-income
OIC countries. As a viable benchmark, we present index values for EU-27 countries and United
States. In conducting our comparisons, we follow the methodology by Barth, Caprio and Levine
(2013) and present the evolution of banking regulation and supervision practices in 7
categories together with their association to the Basel core principles:
 Scope of Bank Activities and Financial Conglomerate Variables
 Capital Regulations
 Official Supervisory Power
 Private Monitoring and External Governance
 Deposit Insurance Schemes
 Restrictions on Entry into Banking Sector
 Additional Information from individual survey questions
4.2.1 Scope of Bank Activities and Financial Conglomerate Variables
Barth, Caprio and Levine (2013) have constructed indices from the survey questions, which
allow quantifying the degree and effectiveness of regulations. Variables regarding bank activity
aims at capturing the range of activities banks can undertake, i.e. securities activities,
insurance activities and real estate activities. Specifically, securities activities refer to
securities underwriting, brokering, dealing, and all aspects of the mutual fund industry.
Insurance activities are insurance underwriting and selling and real estate activities refer to
real estate investment. The index values for securities, insurance, and real estate range from 1
to 4, where larger values indicate more restrictions on banks performing each activity. In
particular, 4 signifies prohibited, 3 indicates that there are tight restrictions on the provision of
the activity, 2 means that the activity is permitted but with some limits, and 1 signals that the
activity is permitted. Finally, the another variable is constructed as the sum of these three
which represents the overall restrictiveness of the regulations on bank activity, which ranges
from 3-12, where higher values indicates a more stringent regulation.
Survey data cover the time period between 2000 and 2011, even though it lacks the
information on the current stance of the regulations, it provide valuable information on the
evolution of regulatory policies in selected member countries. For some waves of the survey
and for some questions, data for OIC countries are not available. As discussed above, higher
values indicate that activity is prohibited and small values signal that activity is permitted.