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.
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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)
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