A Shot in the Dark: Can Developing Countries' Bank Regulators Enforce Capital Requirements?

Posted: 4 Aug 2010

See all articles by R. A. Parinduri

R. A. Parinduri

Nottingham University Business School, Malaysia Campus

Date Written: August 4, 2010

Abstract

Regulators in developing countries may not have access to timely ex-post verifiable information regarding banks' capital or investment decision. This paper examines whether, in such an environment, regulators can enforce capital requirements. Using a model of a relationship between a regulator and a representative bank in a principal-agent framework, I show that, to enforce capital requirements, regulators need to audit banks with some positive probability. This result emphasizes the necessity of having audit policy as a part of prudential regulation of banks in developing countries.

Keywords: capital requirements, bank regulation, audit

JEL Classification: D82, G21, G28

Suggested Citation

Parinduri, Rasyad A., A Shot in the Dark: Can Developing Countries' Bank Regulators Enforce Capital Requirements? (August 4, 2010). Nottingham Univ. Business School Malaysia Campus Research Paper No. 2010-02, Available at SSRN: https://ssrn.com/abstract=1653183

Rasyad A. Parinduri (Contact Author)

Nottingham University Business School, Malaysia Campus ( email )

Wisma MISC
No. 2 Jalan Conlay
Kuala Lumpur, Selangor 43500
Malaysia

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
387
PlumX Metrics