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Basel core principles and bank soundness : does compliance matter ?

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  • Demirguc-Kunt, Asli
  • Detragiache, Enrica

Abstract

This paper studies whether compliance with the Basel Core Principles for effective banking supervision is associated with bank soundness. Using data for more than 3,000 banks in 86 countries, the authors find that neither the overall index of compliance with the Basel Core Principles nor the individual components of the index are robustly associated with bank risk measured by Z-scores. The results of the analysis cast doubt on the usefulness of the Basel Core Principles in ensuring bank soundness.

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File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2009/11/16/000158349_20091116091334/Rendered/PDF/WPS5129.pdf
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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5129.

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Date of creation: 01 Nov 2009
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Handle: RePEc:wbk:wbrwps:5129

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Related research

Keywords: Banks&Banking Reform; Public Sector Corruption&Anticorruption Measures; Financial Intermediation; Debt Markets; Hazard Risk Management;

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References

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  1. Acharya, Viral V., 2009. "A Theory of Systemic Risk and Design of Prudential Bank Regulation," CEPR Discussion Papers 7164, C.E.P.R. Discussion Papers.
  2. Enrica Detragiache & Thierry Tressel & Asli Demirgüç-Kunt, 2006. "Banking on the Principles: Compliance with Basel Core Principles and Bank Soundness," IMF Working Papers 06/242, International Monetary Fund.
  3. James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002. "Bank Regulation and Supervision: What Works Best?," NBER Working Papers 9323, National Bureau of Economic Research, Inc.
  4. Udaibir S. Das & Plamen Yossifov & Richard Podpiera & Dmitriy Rozhkov, 2005. "Quality of Financial Policies and Financial System Stress," IMF Working Papers 05/173, International Monetary Fund.
  5. Luc Laeven & Ross Levine, 2008. "Bank Governance, Regulation, and Risk Taking," NBER Working Papers 14113, National Bureau of Economic Research, Inc.
  6. Charles Goodhart, 2008. "The Regulatory Response to the Financial Crisis," FMG Special Papers sp177, Financial Markets Group.
  7. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
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Cited by:
  1. Delis, Manthos D & Staikouras, Panagiotis & Tsoumas, Chris, 2013. "Enforcement actions and bank behavior," MPRA Paper 43557, University Library of Munich, Germany.
  2. Jeroen Klomp & Jacob de Haan (DNB), 2010. "Banking risk and regulation: Does one size fit all?," CPB Discussion Paper 164, CPB Netherlands Bureau for Economic Policy Analysis.

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