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Enforcement actions and bank behavior

Manthos Delis (), Panagiotis Staikouras and Chris Tsoumas ()

MPRA Paper from University Library of Munich, Germany

Abstract: Employing a unique data set for the period 2000-2010, this paper examines the impact of enforcement actions (sanctions) on bank capital, risk, and performance. We find that high risk weighted asset ratios tend to attract supervisory intervention. Sanctions whose cause lies at the core of bank safety and soundness curtail the risk-weighted asset ratio, but amplify the risk of insolvency and returns volatility, which implies that these sanctions do not improve the risk profile of the involved banks, possibly because they come too late. Sanctions targeting internal control and risk management weaknesses appear to be well-timed and to restrain further increases in the risk-weighted assets ratio without impairing bank fundamentals. Sanctions against institution-affiliated parties do not seem to affect bank behavior. We suggest that supervisory attention should be placed on the timely uncovering of internal control and risk management deficiencies as this would allow the early tackling of the origins of financial distress.

Keywords: Enforcement actions; banking supervision; capital; bank risk; bank performance (search for similar items in EconPapers)
JEL-codes: G28 G21 G01 (search for similar items in EconPapers)
Date: 2013-01-04
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
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