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Supervisory effectiveness and bank risk

Delis, MD and Staikouras, PK (2011) Supervisory effectiveness and bank risk Review of Finance, 15 (3). pp. 511-543.

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This paper investigates the role of banking supervision in controlling bank risk. Banking supervision is measured in terms of enforcement outputs (i.e., on-site audits and sanctions). Our results show an inverted U-shaped relationship between on-site audits and bank risk, while the relationship between sanctions and risk appears to be linear and negative. We also consider the combined effect of effective supervision and banking regulation (in the form of capital and market discipline requirements) on bank risk. We find that effective supervision and market discipline requirements are important and complementary mechanisms in reducing bank fragility. This is in contrast to capital requirements, which prove to be rather futile in controlling bank risk, even when supplemented with a higher volume of on-site audits and sanctions. © The Authors 2011.

Item Type: Article
Divisions : Surrey research (other units)
Authors : Delis, MD and Staikouras, PK
Date : 1 July 2011
DOI : 10.1093/rof/rfq035
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 15:15
Last Modified : 24 Jan 2020 14:12

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