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On-site audits, sanctions, and bank risk-taking: An empirical overture towards a novel regulatory and supervisory philosophy

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Author Info
Delis, Manthos D
Staikouras, Panagiotis

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Abstract

This paper investigates the role of banking supervision, measured in terms of enforcement outputs (i.e., on-site audits and sanctions) in containing bank risk-taking. Our results on the direct banking supervision–risk-taking correlation show an inverted U-shaped relationship between on-site audits and bank risk, while the nexus between enforcement actions and risk appears linear and negative. With respect to the combined effect of efficient supervision and banking regulation (in the form of capital and transparency requirements) we find that effective supervision and disclosure prerequisites are important and complementary mechanisms in reducing bank fragility, by contrast to capital requirements which are proven rather futile in controlling bank risk, even when supplemented with a higher volume of on-site audits and enforcement actions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16836.

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Date of creation: 17 Aug 2009
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Handle: RePEc:pra:mprapa:16836

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Related research
Keywords: Bank risk; Regulation; Supervision; Enforcement; Sanctions; Audits;

Find related papers by JEL classification:
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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