Enforcement actions and bank behavior
AbstractEmploying a unique data set for the period 2000-2010, this paper examines the impact of enforcement actions (sanctions) on bank capital, risk, and performance. We find that high risk weighted asset ratios tend to attract supervisory intervention. Sanctions whose cause lies at the core of bank safety and soundness curtail the risk-weighted asset ratio, but amplify the risk of insolvency and returns volatility, which implies that these sanctions do not improve the risk profile of the involved banks, possibly because they come too late. Sanctions targeting internal control and risk management weaknesses appear to be well-timed and to restrain further increases in the risk-weighted assets ratio without impairing bank fundamentals. Sanctions against institution-affiliated parties do not seem to affect bank behavior. We suggest that supervisory attention should be placed on the timely uncovering of internal control and risk management deficiencies as this would allow the early tackling of the origins of financial distress.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43557.
Date of creation: 04 Jan 2013
Date of revision:
Enforcement actions; banking supervision; capital; bank risk; bank performance;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
- NEP-BAN-2013-01-12 (Banking)
- NEP-CFN-2013-01-12 (Corporate Finance)
- NEP-RMG-2013-01-12 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frederic S. Mishkin, 2000.
"Prudential Supervision: Why Is It Important and What are the Issues?,"
NBER Working Papers
7926, National Bureau of Economic Research, Inc.
- Frederic S. Mishkin, 2001. "Prudential Supervision: Why Is It Important and What Are the Issues?," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 1-30 National Bureau of Economic Research, Inc.
- Aviv Nevo & Adam Rosen, 2008.
"Identification with imperfect instruments,"
CeMMAP working papers
CWP16/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Randall S. Kroszner, 2000. "The economics and politics of financial modernization," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 25-37.
- R. Alton Gilbert, 1993. "Implications of annual examinations for the Bank Insurance Fund," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 35-52.
- Demirgüç-Kunt, Asli & Detragiache, Enrica, 2011.
"Basel Core Principles and bank soundness: Does compliance matter?,"
Journal of Financial Stability,
Elsevier, vol. 7(4), pages 179-190, December.
- Demirguc-Kunt, Asli & Detragiache, Enrica, 2009. "Basel core principles and bank soundness : does compliance matter ?," Policy Research Working Paper Series 5129, The World Bank.
- Peek, Joe & Rosengren, Eric, 1995.
"Bank regulation and the credit crunch,"
Journal of Banking & Finance,
Elsevier, vol. 19(3-4), pages 679-692, June.
- Kaufman, George G., 1995. "FDICIA and bank capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 721-722, June.
- Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003.
"What Works in Securities Law?,"
NBER Working Papers
9882, National Bureau of Economic Research, Inc.
- Gilbert, R. Alton & Vaughan, Mark D., 2001.
"Do depositors care about enforcement actions?,"
Journal of Economics and Business,
Elsevier, vol. 53(2-3), pages 283-311.
- Delis, Manthos D & Staikouras, Panagiotis, 2009. "On-site audits, sanctions, and bank risk-taking: An empirical overture towards a novel regulatory and supervisory philosophy," MPRA Paper 16836, University Library of Munich, Germany.
- Lars Norden & Martin Weber, 2010. "Credit Line Usage, Checking Account Activity, and Default Risk of Bank Borrowers," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3665-3699, October.
- Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
- Craig Furfine, 2001. "Bank Portfolio Allocation: The Impact of Capital Requirements, Regulatory Monitoring, and Economic Conditions," Journal of Financial Services Research, Springer, vol. 20(1), pages 33-56, September.
- Brous, Peter A & Leggett, Keith, 1996. "Wealth Effects of Enforcement Actions against Financially Distressed Banks," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 19(4), pages 561-77, Winter.
- Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
- Mark J. Flannery & Kasturi P. Rangan, 2008. "What Caused the Bank Capital Build-up of the 1990s?," Review of Finance, European Finance Association, vol. 12(2), pages 391-429.
- Manthos D. Delis & Panagiotis K. Staikouras, 2011. "Supervisory Effectiveness and Bank Risk," Review of Finance, European Finance Association, vol. 15(3), pages 511-543.
- Milne, Alistair, 2002. "Bank capital regulation as an incentive mechanism: Implications for portfolio choice," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 1-23, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.