On-site audits, sanctions, and bank risk-taking: An empirical overture towards a novel regulatory and supervisory philosophy

Manthos D. Delis () and Panagiotis Staikouras

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the role of banking supervision, measured in terms of enforcement outputs (i.e., on-site audits and sanctions) in containing bank risk-taking. Our results on the direct banking supervision–risk-taking correlation show an inverted U-shaped relationship between on-site audits and bank risk, while the nexus between enforcement actions and risk appears linear and negative. With respect to the combined effect of efficient supervision and banking regulation (in the form of capital and transparency requirements) we find that effective supervision and disclosure prerequisites are important and complementary mechanisms in reducing bank fragility, by contrast to capital requirements which are proven rather futile in controlling bank risk, even when supplemented with a higher volume of on-site audits and enforcement actions.

Keywords: Bank risk; Regulation; Supervision; Enforcement; Sanctions; Audits (search for similar items in EconPapers)
JEL-codes: G38 G32 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-reg and nep-rmg
Date: 2009-08-17
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:16836

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