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Basel Core Principles and bank soundness: Does compliance matter?

  • Demirgüç-Kunt, Asli
  • Detragiache, Enrica

This paper studies whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness. Using data for over 3000 banks in 86 countries, we find that neither the overall index of BCP compliance nor its individual components are robustly associated with bank risk measured by individual bank Z-scores. We also fail to find a relationship between BCP compliance and systemic risk measured by a system-wide Z-score.

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Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 7 (2011)
Issue (Month): 4 (December)
Pages: 179-190

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Handle: RePEc:eee:finsta:v:7:y:2011:i:4:p:179-190
Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

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  1. Enrica Detragiache & Thierry Tressel & Asli Demirgüç-Kunt, 2006. "Bankingon the Principles; Compliance with Basel Core Principles and Bank Soundness," IMF Working Papers 06/242, International Monetary Fund.
  2. 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.
  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. Richard Podpiera, 2004. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Working Papers 04/204, International Monetary Fund.
  5. Kashyap, Anil K. & Rajan, Raghuram G. & Stein, Jeremy C., 2008. "Rethinking capital regulation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 431-471.
  6. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
  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.
  8. Charles Goodhart, 2008. "The Regulatory Response to the Financial Crisis," FMG Special Papers sp177, Financial Markets Group.
  9. Luc Laeven & Ross Levine, 2008. "Bank Governance, Regulation, and Risk Taking," NBER Working Papers 14113, National Bureau of Economic Research, Inc.
  10. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
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