Basel Core Principles and Bank Soundness: Does Compliance Matter?

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.

Number of Pages in PDF File: 32

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

working papers series