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

40 Pages Posted: 20 Apr 2016

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2006

Abstract

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.

Keywords: Banks & Banking Reform, Financial Intermediation, Corporate Law, Financial Crisis Management & Restructuring, Insurance & Risk Mitigation

Suggested Citation

Demirgüç-Kunt, Asli and Detragiache, Enrica and Tressel, Thierry, Banking on the Principles: Compliance with Basel Core Principles and Bank Soundness (June 1, 2006). World Bank Policy Research Working Paper No. 3954. Available at SSRN: https://ssrn.com/abstract=923261

Asli Demirgüç-Kunt (Contact Author)

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Thierry Tressel

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
428
Abstract Views
1,697
rank
29,283
PlumX Metrics