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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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  • Delis, Manthos D
  • Staikouras, Panagiotis

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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Bibliographic Info

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

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Cited by:
  1. Delis, Manthos D & Gaganis, Chrysovalantis & Pasiouras, Fotios, 2009. "Bank liquidity and the board of directors," MPRA Paper 18872, University Library of Munich, Germany.
  2. Delis, Manthos D & Staikouras, Panagiotis & Tsoumas, Chris, 2013. "Enforcement actions and bank behavior," MPRA Paper 43557, University Library of Munich, Germany.

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