Banking on the Principles : Compliance with Basel Core Principles and Bank Soundness

Banking on the Principles : Compliance with Basel Core Principles and Bank Soundness

This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision (BCP) improves bank soundness. BCP compliance assessments provide a unique source of information about the quality of bank supervision and regulation around the world. The authors find a significan...

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Bibliographic Details
Main Authors: Demirgüç-Kunt, Aslı, Detragiache, Enrica, Tressel, Thierry
Format: Policy Research Working Paper
Language:English
Published: World Bank, Washington, DC 2012
Subjects:
ACCOUNTING
ACQUISITIONS
AGENTS
APPLICATIONS
AUDITING
AUDITORS
AUTONOMY
BANK ASSETS
BANK MANAGEMENT
BANK RATINGS
BANK REGULATION
BANK SOLVENCY
BANK SUPERVISION
BANKING CRISES
BANKING INDUSTRY
BANKING LAWS
BANKING REGULATION
BANKING SECTOR
BANKING SUPERVISION
BANKING SYSTEM
BANKING SYSTEMS
BANKS
BORROWING
BORROWING COSTS
CAPITAL ADEQUACY
CAPITAL ADEQUACY RATIOS
CAPITAL REGULATION
CAPITALIZATION
COMMERCIAL BANK
CONSOLIDATED SUPERVISION
CONTRACT ENFORCEMENT
CORPORATE CONTROL
CORPORATIONS
CREDIT MARKETS
CREDIT POLICIES
CREDIT RATINGS
CROSS COUNTRY EXPERIENCE
DEBT
DEPOSIT INSURANCE
DEPOSITORS
DEREGULATION
DISCLOSURE REQUIREMENTS
DISTRESSED BANKS
ECONOMIC GROWTH
ECONOMICS
EMERGING MARKETS
EUROPEAN CENTRAL BANK
EXTERNAL AUDITORS
FINANCIAL CRISES
FINANCIAL CRISIS
FINANCIAL DATA
FINANCIAL INSTITUTION
FINANCIAL INTERMEDIATION
FINANCIAL MARKETS
FINANCIAL POLICIES
FINANCIAL SERVICES
FINANCIAL STABILITY
FINANCIAL STATEMENTS
FINANCIAL STRENGTH
FOREIGN BANKS
GLOBALIZATION
INFLATION
INFORMATION DISCLOSURE
INSTITUTIONAL DEVELOPMENT
INTEGRITY
INTEREST RATES
INVESTIGATION
LAWS
LEGAL FRAMEWORK
LIMITED
LIQUID ASSETS
LIQUIDITY
LIQUIDITY REQUIREMENTS
MACROECONOMIC POLICIES
MARKET DISCIPLINE
MIDDLE EAST
MORAL HAZARD
NORTH AFRICA
OPERATING COSTS
PORTFOLIOS
PROFITABILITY
PRUDENTIAL REGULATION
PRUDENTIAL REGULATIONS
PRUDENTIAL REQUIREMENTS
RATING AGENCIES
REGULATORY FRAMEWORK
RESERVES
RETURN ON ASSETS
RETURN ON EQUITY
RISK MANAGEMENT
RISK MANAGEMENT PROCESS
STATE BANKS
SUB-SAHARAN AFRICA
SUBORDINATED DEBT
SUPERVISORY AUTHORITIES
SUPERVISORY REGIMES
SUPERVISORY SYSTEM
SYSTEMIC BANKING CRISES
TRANSPARENCY
VOLATILITY
Online Access:http://documents.worldbank.org/curated/en/2006/06/6877442/banking-principles-compliance-basel-core-principles-bank-soundness
http://hdl.handle.net/10986/8405
Description
Summary:This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision (BCP) improves bank soundness. BCP compliance assessments provide a unique source of information about the quality of bank supervision and regulation around the world. The authors find a significant and positive relationship between bank soundness (measured with Moody's financial strength ratings) and compliance with principles related to information provision. Specifically, countries that require banks to report regularly and accurately their financial data to regulators and market participants have sounder banks. This relationship is robust to controlling for broad indexes of institutional quality, macroeconomic variables, sovereign ratings, as well as reverse causality. Measuring soundness through z-scores yields similar results. The findings emphasize the importance of transparency in making supervisory processes effective and strengthening market discipline. Countries aiming to upgrade banking regulation and supervision should consider giving priority to information provision over other elements of the Core Principles.

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