Regulatory Compliance And Bank Risk-Taking

Financial supervision is crucial to the asset quality of financial institutions and the stability of the financial system.The academic community usually affirms the positive role of financial supervision and thus encourages countries to actively comply with the regulatory regulations.Basel Core Principles for Effective Banking Supervision(BCPs),as a unified Supervision standard of the international Banking industry,is composed of 25 Core principles and covers all aspects of Banking Supervision,and being regarded as the benchmark of Banking Supervision by many countries.The International Monetary Fund(IMF)and the World Bank's global inspection and evaluation reports show that countries have great differences in the compliance with BCPs.The questions we are concerned about are,what are the main causes of this difference? What is the impact of such differences in the compliance of banking regulatory rules on the behaviors and results of bank risk taking? What is the mechanism? Based on the consideration of these issues,this study is carried out from the dual perspectives of "law and finance" and economic level.First of all,we collects the data of the compliance degree of BCPs in 48 countries around the world to observe the internal regularity,and makes an in-depth study of the difference of the compliance degree between countries from two dimensions,which are legal origin and economic development level of each country.Subsequently,we further take the data of a total of 11,438 Banks in these 48 countries from 2010 to 2017 as samples,to study the internal relationship between regulatory compliance degree and bank risk taking,so as to explore the effectiveness of this international unified regulatory rule.Because of the specificity of the data,above issues are empirically studied by using ANCOVA covariance analysis model.The results of this study show that :(1)Economic level,rather than legal origins,is the main factor causing differences in BCP compliance degree among countries;(2)The judgment standard for the level of banking supervision in various countries is not that the higher the degree of compliance with the regulation,the better;(3)The degree of BCP compliance will change the mechanism of banking risk-taking behaviors to results.Larger Banks are more able to bear the costs of regulation and supervision,and thus more able to offset the negative effects brought by regulation and supervision.Policy Suggestions: China's financial regulatory authorities should treat the compliance of the BCP regulations in a scientific way.It should not only consider the impact of the high overall economic level of China but the large gap in regional economic level on its implementation effect of BCP,but also carefully analyze the tolerance of banks of different sizes and characteristics to the risk control cost.It would be more effective for the financial supervision authorities to adopt "menu-type" classification supervision for various domestic Banks.