Basel Core Principles and Bank Soundness : Does Compliance Matter?

Basel Core Principles and Bank Soundness : Does Compliance Matter?

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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Bibliographic Details
Main Authors: Detragiache, Enrica, Demirgüç-Kunt, Asli
Language:English
Published: 2009-11-01
Subjects:ACCOUNTING, ASSETS RATIOS, AUTONOMY, BALANCE SHEETS, BANK ASSETS, BANK BALANCE SHEETS, BANK CREDIT, BANK EQUITY, BANK LOANS, BANK PORTFOLIOS, BANK RATINGS, BANK REGULATION, BANK RISK, BANK RISK TAKING, BANK SUPERVISION, BANKING CRISES, BANKING CRISIS, BANKING LAWS, BANKING SECTOR, BANKING SECTOR DEVELOPMENT, BANKING SUPERVISION, BANKING SYSTEM, BANKING SYSTEMS, BANKS, BEST PRACTICES, CAPITAL ADEQUACY, CAPITAL ADEQUACY RATIOS, CAPITAL REGULATION, CAPITAL STANDARDS, CAPITALIZATION, CENTRAL BANKS, COMMERCIAL BANK, COMMERCIAL BANKS, CONFIDENCE, CONSOLIDATED SUPERVISION, CONTRACT ENFORCEMENT, COOPERATIVE BANKS, CORPORATE GOVERNANCE, CORRUPTION, COUNTRY COMPARISONS, COUNTRY RISKS, CREDIBILITY, CREDIT EXPANSION, CREDIT INSTITUTIONS, CREDIT POLICIES, CREDIT RATINGS, CRIMINAL, CURRENCY, DECLARATION, DEPOSIT, DEPOSIT INSURANCE, DEPOSITORS, DEVELOPING COUNTRIES, EMERGING MARKET, EMERGING MARKET COUNTRIES, EXCHANGE RATE, EXTERNAL AUDITORS, FINANCIAL CRISIS, FINANCIAL DISTRESS, FINANCIAL INSTITUTIONS, FINANCIAL POLICIES, FINANCIAL REGULATION, FINANCIAL RISK, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL STATEMENTS, FINANCIAL STRENGTH, FINANCIAL STRENGTH RATING, FINANCIAL SYSTEM, FOREIGN BANKS, GLOBAL BANKING, HOST COUNTRY, ILLIQUIDITY, INFLATION, INFLATION INDEX, INFLATION RATE, INFORMATION DISCLOSURE, INTEGRITY, INTEREST RATES, INTERNATIONAL ACCOUNTING STANDARDS, INTERNATIONAL BANK, INTERNATIONAL FINANCIAL STATISTICS, LAWS, LEGAL FRAMEWORK, LOAN, LOAN SPREADS, MACROECONOMIC CONTROL, MACROECONOMIC ENVIRONMENT, MACROECONOMIC POLICIES, MACROECONOMIC VARIABLES, MARKET STRUCTURE, MONETARY FUND, MORTGAGE, MORTGAGE BANKS, NONPERFORMING LOANS, OPERATING COSTS, OVERHEAD COSTS, PORTFOLIOS, PRIVATE CREDIT, PRUDENTIAL REGULATIONS, PRUDENTIAL SUPERVISION, RATING AGENCIES, REAL INTEREST, REAL INTEREST RATES, REGULATORY APPROACHES, REGULATORY FRAMEWORKS, REGULATORY GOVERNANCE, REGULATORY STANDARDS, RESERVES, RETURN, RETURN ON ASSETS, RETURN ON EQUITY, RETURNS, RISK MANAGEMENT, RISK TAKING, RULE OF LAW, SAFETY, SAVINGS, SAVINGS BANKS, SECURITIZATION, SHAREHOLDERS, SMALL BANKS, SOVEREIGN RATING, SOVEREIGN RATINGS, STORM, SUPERVISION OF BANKS, SUPERVISORY AGENCIES, SUPERVISORY AGENCY, SUPERVISORY AUTHORITIES, SUPERVISORY FRAMEWORK, SYSTEMIC RISK, TREASURY,
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091116091334
https://hdl.handle.net/10986/4321
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Summary: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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