Professor Khan and Dewan empirically examine by whom the commercial banks should be supervised for the stability of a banking sector. With a cross-sectional dataset from 78 countries and using a logit estimation model, they find that the probability of the instability of a country’s banking sector reduces if the commercial banks are supervised exclusively by the country’s central bank. This probability is even higher if the central bank can conduct its supervision in a less-corrupt institutional environment. Finally, by carrying out some counter-factual thought experiments, they confirm that banking supervision causes banking sector instability, not vice versa. Professor Khan and Dewan published their finding in the journal Applied Economics Letters

Khan, A. & Dewan, H. (2013). “Who should supervise commercial banks for the banking sector stability?” Applied Economics Letters, 20 (17): 1531-1537, Taylor & Francis.