Prose †A Christmas Carol Essay

But it’s too late now’, showing either that he is not as bitter as we thought, or that he is already learning from the lessons he is being taught. He is also deeply affected in the third episode when talking to the Spectre about his late sister and her son; Fred, his nephew. After we see his reaction, which was filled with sorrow and remorse, we realise that a possible reason for his hatred of Christmas is because of the death of his sister, and the reason for Scrooge being so mean. Scrooge learns his lesson throughout the novel through the reactions he portrays through the episodes he sees. An important episode in this stave is the one of Scrooge at Mr. Fezziwig’s ball. This is because of the quote ‘He corroborated everything, remembered everything, enjoyed everything’, which is important because it shows that he can love and can, if he wants to, change. Also in this episode, Scrooge says ‘The happiness he gives, is quite as great as if it cost a fortune’, which shows that Scrooge can still love, yet the positives are outweighed by the negatives in his life, so he does not see the point of loving and living. He also says ‘I should like to be able to say a word or two to my clerk just now’, which shows that he is getting the message and is learning the lesson that the Spirits have to give. The next strong reaction that the Ghost gets from Scrooge is after the scene with his fianci , which contains the evident emotions of sadness and regret. His may be for not changing his ways, or for the actions of his fianci , but they are portrayed when he says to the Spirit ‘Why do you delight to torture me? ‘ Lastly, Scrooge tries to extinguish the light upon the Spirit’s head, which is an obvious display of misery and pain which is evoked onto Scrooge in the various scenes. The vivid description of the Ghost at the beginning of the stave is symbolic, like the description of Marley’s chain in the first stave entitled ‘Marley’s Ghost’. The Spirit is described as ‘like a child: yet not so like a child as an old man’, which makes the Ghost seem innocent and good, the common perception a children. The Spectre also has ‘pure white’ clothing, which reinforces innocence, and holds a clove of holly, which symbolises Christianity, and purity also. Other vivid elements of the Spirit’s description include; a crown symbolising a halo which creates an obvious link to heaven and virtue, and ‘a great extinguisher for a cap, which it now held under its arm’, which emphasises its appearance as a ghost. Stave Three is entitled ‘The Second of the Three Spirits’, and at the beginning of which, Dickens creates an apprehensious, and suspenseful atmosphere through the use of the delayed visit from the second Spectre. Unlike the previous two times, pathetic fallery is not used, but, like the last time, the use of time is; ‘five minutes, ten minutes, a quarter of an hour went by, yet nothing came’. This creates suspense as to what will happen, and when the spirit will come. Dickens also sets the scene by having Scrooge on guard, ready for when the next spectre will come, and ready for the same greeting as from the spirit before. This is evident through the quote ‘But, finding that he turned uncomfortably cold when he began to wonder which of the curtains this new spectre would draw back, he put every one aside with his own hands’. This creates suspense because, when the Ghost doesn’t seem to come on time, both the reader and Scrooge begin to wonder if, how and when he will come. This suspenseful atmosphere is enhanced by ‘a strange voice’ calling Scrooge by his name. At this point, we do not know who or what it is, or even if it is the second of the three spirits, which builds up on the suspenseful atmosphere, because of the unknown. The Ghost of Christmas Present shows Scrooge many things about, and to do with Christmas, and mainly shows him why people celebrate it, despite what conditions they live in. Firstly, the Ghost shows Scrooge the market place in the run-up to the present Christmas, with all of the food displays, the frenzied shopping and the excitement of Christmas, all of these things that Scrooge doesn’t do currently, or wouldn’t do without the lessons from the Ghosts, in the run-up to Christmas. This also says the fact that happiness does not come from the amount of money you have, but is through being with loved ones, and making an effort to please and enjoy. This is evident through the quote ‘but the customers were all so hurried and so eager in the hopeful promise of the day’, which describes the enthusiasm of everyone for that one day of the year which is the time for festiveness and family. The Ghost next takes Scrooge to the house of his employee; Bob Cratchitt and family, and sees how the family survive at Christmas, which is pitiful in itself, never mind how they survive normally. The quote ‘Such a bustle ensued that you might have thought a goose was the rarest of birds †¦ ; and in truth it was something like it in this very house’, illustrates how poor the Cratchitts are, for the goose is essentially ordinary, yet is extravagant in this house because they are used to so much less. Yet, this episode shows Scrooge and the reader that Christmas is not just to be celebrated because it is the birth of Jesus, or because it brings many gifts, but because it brings family together and lets people be happy and merry. Collectively, the first two episodes displays to Scrooge that Christmas is not about the bad times in the past, but is about family. Next, Scrooge visits the sailors, miners and lighthouse keepers at Christmas, which describes families and co-workers enjoying each others company, weather young or old, and celebrating Christmas in the ‘bowels of the earth’ and various other conditions, which is more than what Scrooge has ever done, even if his experiences have been the lesser of two evils. These episodes show Scrooge that happiness is not just about money, or is even to do with money, bit is within each other and within family. After that, the Spectre takes Scrooge to his nephew, Fred, celebrating Christmas with his wife and sisters-in-laws. Scrooge sees Fred’s ‘infectious’ laughter which lightens the mood of everyone there, showing that happiness is in others, but he also sees the ridicule they use against him. However, he also sees how much his nephew cares for him, when he says ‘his offences carry their own punishment, and I have nothing to say against him’. When Scrooge goes to see the miners, sailors and the lighthouse keeper, Scrooge learns an important lesson which will help him complete his journey with the three spirits. The lesson is reinforcing to Scrooge, and the reader, that happiness is in others, not in the amount of money one has. This is evident when describing the miners who, according to the spirit, ‘labour in the bowels of the earth’. Dickens describes the families with examples like ‘An old, old man and woman, with their children and their children’s children, and another generation beyond that, all decked out in their holiday attire’, which links to the poor, and their stereotypical big families, and this quote describes how closely linked and happy they are to be with each other, showing that, though they are poor, they are happy. This is also supported by the lighthouse keepers when Dickens says ‘Joining their horny hands over the rough table at which they sat, they whished each other a merry Christmas in their can of grog’. This quote also says that, despite how well off you are or where you live, you can be happy, which is the inevitable lesson Scrooge will learn. The lesson is also taught with the sailors with the quotation ‘and had remembered those he cared for at a distance, and had known that they delighted to remember him’. Scrooge also makes a realisation at his nephew’s house, when he hears what his family really think about him, and also sees how Christmas can be a happy occasion. Firstly, upon entering the house with the Spectre, Scrooge sees his nephew and other family after they have eaten their Christmas dinner, and enjoying the celebrations, which includes music and games like ‘blind-man’s buff’ and ‘yes and no’, the latter of which provided the main source of name-calling directed at Scrooge. However, upon entering, he initially hears a conversation on how it appears that only Fred takes pity on Scrooge, while his companions take delight in mocking him, with jokes about how rich he is and comments about their dislike for him, which contradicts from Fred’s view on Scrooge, like how ‘his offences carry their own punishment’, how he has nothing to say against him, and how ‘His wealth is no good to him. He don’t do any good with it’. After that, the family then goes onto play music, which reminds Scrooge of his days at boarding school, and also the Ghost of Christmas Past and the lessons that he had been shown so far, which adds to the morals he is learning because ‘he might have cultivated the kindness of life for his own happiness with his own hands, without resorting to the sexton’s spade that buried Jacob Marley’, which shows that Scrooge is learning to regret, and see what he has done wrong. Games then follow the music, and in them, happiness is reinforced, again, in others and not in money, through Topper playing ‘blind-man’s buff’ with Fred’s wife’s sister. However, when reaching the last game, Scrooge becomes the target of ridicule, even by Fred, by describing a ‘disagreeable animal, a savage animal, an animal that growled and grunted sometimes, and talked sometimes, and lived in London, and walked about the streets, and wasn’t made a show of, and wasn’t led by anybody, and didn’t live in a menagerie, and was never killed in a market, and was not a horse, or an ass, or a cow, or a bull, or a tiger, or a dog, or a pig, or a cat, or a bear’. The answer was indeed Scrooge, and shows how other people perceive him, even his own family. A major part in the lessons Scrooge learns come from the visit to the Cratchitts’, and he is deeply affected by it. Firstly, Scrooge sees how much, or most suitably how little, the poor, namely the Cratchitts in this episode, get to eat. This is evidently a contrast to what Scrooge would be used to, and would have affected him to see how different the conditions were for the poor. Also when Scrooge visits the Cratchitts, we are introduced to the character Tiny Tim, Bob Cratchitt’s disabled son, who is used in the novel as a symbol of the poor from Victorian England. Dickens uses Tiny Tim to evoke sympathy in both the reader and Scrooge, because of his disability and his poor living conditions, and also because of his good nature towards his life, and the sufferings of other people, showing that he is not selfish despite his condition. Also, Scrooge is affected by his visit to the Cratchitt’s because they seem to be a contradiction of how the poor were seen in typical Victorian times. They were mainly seen as feckless, immoral, idle and drunken, yet Tiny Tim and family are portrayed as loving, caring, moral people, which is another reason why both Scrooge and the reader react so strongly to this episode. When answering Scrooge’s question on whether Tiny Tim will live, the Ghost answers with a quote that Scrooge had said to the charity workers at the beginning of the novel; ‘decrease the surplus population’. This is teaching and reinforcing to Scrooge that his actions were not only wrong, but regrettable, especially after viewing the scene with Bob Cratchitt, Tiny Tim and their family. This also creates a greater impact on Scrooge because he knows they were his own, spiteful words, and shocks him into thinking he could ever say that. This also proves that he is learning the lessons of the Ghosts. When answering Scrooge, the Spirit also uses the line; ‘to hear the Insect on the leaf pronouncing on the too much life among his hungry brothers in the dust’. This line is a metaphor portraying Scrooge as an insect and the dust as the poor and hungry, like Tiny Tim, and reinforcing what Scrooge said earlier, about ‘decreasing the surplus population’. This says that the population is too big and that many should die to reduce it, which is something that Scrooge now regrets saying, so has a bigger impact on his reactions to the Spectre’s answer. At the end of the third stave, the Ghost of Christmas Present shows Scrooge two creatures from under his cloak. They were shaped as children, a boy and a girl, who were described as ‘wretched, abject, frightful, hideous, miserable’.

Art Notes

Crytek Art Notes [Company Name] [Street Address] [City, ST ZIP Code] [Recipient Name] Art Notes [Hotel Name] [Street Address] [City, ST ZIP Code] Dear [Recipient Name]: I am a frequent traveler and have been a loyal customer of your hotel for many years because I appreciate your emphasis on value and excellent service. Yet a recent episode at your hotel has made me question my loyalty. [Describe your experience. For example: I stayed in your Lilburn, Georgia, hotel, room 203, from Monday, September 1 through Thursday, September 4.Throughout my stay my towels were consistently dirty and the bathroom plumbing was faulty. To make matters worse, one of my neighbors was extremely loud and entertained visitors until 3:00 AM. I complained to the front desk manager and requested another room but was told there were no other rooms available. No one from the hotel spoke to the noisy guest on my behalf. Despite my repeated complaints, it was not until the third day of my stay that the plumbing was fixed and my towels refreshed.Because of the noise, I was unable to sleep comfortably for two nights, and hence, my business meetings were far more stressful than they needed to be. ] I am writing to encourage you to improve your customer service. It is extremely distressing for a loyal, frequent traveler to experience such poor service. I enjoy staying at your hotel for a number of reasons. Overall the atmosphere makes me feel as comfortable, as if I were at home. I hate having my positive feelings about your hotel ruined by one visit. I hope this problem will be corrected prior to my next visit. Sincerely, Crytek

Multi axis milling machine Assignment Example | Topics and Well Written Essays - 1500 words

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Why parents should not argue in cheldren's presence Essay

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Love in Marriage Essay Example | Topics and Well Written Essays - 750 words

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Home Health Care Research Paper Example | Topics and Well Written Essays - 2250 words

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Alice Walker’s the Welcome Table Essay Example for Free

Alice Walker’s the Welcome Table Essay Alice Walker’s The Welcome Table is a short story that gives a historical and cultural look at how segregation in the south influenced people’s lives. The story portrays an old black woman as the main character. It has plot, setting, characters, symbolism, theme, tone and imagery that the author skillfully narrated in the third person omniscient point of view to create the story. The reader experiences an insight into behavior that was caused by segregation in the State of Georgia in the south. â€Å"The reverend of the church stopped her pleasantly as she stepped into the vestibule†¦..†Aunty, you know this is not your church?†Ã¢â‚¬ ¦.Inside the church she sat on the very first bench from the back.† (Clugston, 2010) Head of the congregation the reverend instigates the act of religious segregation and without further prompting; his congregants willingly follows. The story also portrays the church people’s mindset to maintain religious segregation even in the act of worship. â€Å"They looked with contempt †¦.at the old woman†¦could their husbands expect them to sit up in church with that? No, no†¦Ã¢â‚¬  (Clugston, 2010) The narrator uses strong descriptions to recreate the era and to pull the reader into the story. It really shows how segregation influences people in their everyday life. Black slaves were freed. However, black and white people remained segregated because segregation was the way of life for the people during that period in Georgia. The system of segregation demanded that black people had to sit in the back of public busses and the old woman in the story knew her place because she freely sat at the back of the church. â€Å"Inside the church she sat on the very first bench from the back,† (Clugston, 2010). Religious segregation is the main theme. The song at the beginning of the story sets the tone and pulls the reader into the south where ex-slaves sang Negro spirituals for comfort. â€Å"I’m going to sit at the Welcome table; Shout my troubles over; Walk and talk with Jesus; Tell God how you treat me; One of these days!†(Clugston, 2010) Religious segregation was a major part of the culture in Georgia and it is the theme of this story; in that the author details the harsh cold manner in which it affects people. The spiritual at the beginning points to hope to one day experience welcome (acceptance), to sit and talk with Jesus who both the blacks and whites are worshipping but cannot do so under the same roof. In other words, the song is an expression of hope that segregation will end. The black old woman braves freezing temperature, without warm enough clothing to go to the house of worship. Winter represents death, stagnation and sleep (Clugston, 2010) and the old black woman represents slavery. The black old woman, symbolizing slavery is almost blind and almost dead. Yet she is determined to struggle through the freezing cold to push past the reverend, and ignore the young usher to seat herself in the whites only church. â€Å"She brushed past him anyway, as if she had been brushing past him all her life, except this time she was in a hurry. Inside the church she sat†¦It was cold, even inside the church†¦.† This act by the dying old black woman is symbolic of the ex-slaves’ struggle to conquer the final frontier of segregation more so religious segregation. The author uses symbolism in this case to represent the people’s behavior towards the old woman and her determination to have her way. The Author skillfully uses imagery to tell a powerful story The Welcome Table. The very beginning paints a picture of the main character. â€Å"In her Sunday-go-to-meeting clothes:†¦.head rag stained with grease from the many oily pigtails underneath,† What seems like a simple description of her clothes contained words that contributed to the painting of the picture. Then on the other hand the ladies of the church required a different set of adjectives. â€Å"Leather bagged and shoed, with calfskin gloves to keep out the cold.This done, the wives folded their healthy arms across their trim middles†¦Ã¢â‚¬  This vivid contrast also represents the religious disparity between the black people and the white people even though they are both worshipping the same god. â€Å"The reverend of the church stopped her pleasantly as she stepped into the vestibule†¦..†Aunty, you know this is not your church?†Ã¢â‚¬ ¦.Inside the church she sat on the very first bench from the back.† (Clugston, 2010) The black old woman, symbolizing slavery is almost blind and almost dead. Yet she is determined to struggle through the freezing cold to push past the reverend, and ignore the young usher to seat herself in the whites only church. Alice Walker’s The Welcome Table gives a historical and cultural look at how segregation in the south influenced people’s lives. The author skillfully narrated in the third person omniscient point of view to create the story. The reader experiences an insight into behavior that was caused by segregation in the State of Georgia in the south. The spiritual at the beginning points to hope to one day experience welcome (acceptance), to sit and talk with Jesus who both the blacks and whites are worshipping but cannot do so under the same roof. In other words, the song is an expression of hope that segregation will end. REFERENCE Clugston, W. R., (2010). Journey Into Literature, San Diego, CA: Bridgepoint Education Inc. Barnet, S., Berman, M., Burto, W., (1967) An Introduction to Literature 3rd Edition Toronto, CAN:Little, Brown and Company Inc.

Cathedral written by Raymond Carver Essay Example for Free

Cathedral written by Raymond Carver Essay In the story Cathedral written by Raymond Carver, it seems that stereotypes of the blind form barriers between the blind and the sighted. The man in the story has always had misconceptions of the blind which came from the movies (Carver 1). The title, Cathedral, is significant because it helps the man envision the life of Robert. As Robert, the blind man, entered his life, it was hard for the man to form any bond with Robert due to his visual impairment. The man even created a picture in his mind of what Robert would look like, and how he would act. This is because the man has never had any interaction with a blind person, making him have preconceived ideas about Robert. Having Robert stay at the mans house left the man feeling quite uneasy. Not only was Robert a threat to his wife, he also thought that Robert may be a hassle to deal with. The man stated, I wasnt enthusiastic about his visit. He was no one I knew. And his being blind bothered me (Carver 1). Because the man had such strong images in his mind about Robert, the first time he saw Robert caught him by surprise. Roberts appearance was not unordinary, and did not look like a blind person. He wore brown slacks, brown shoes, a light brown shirt, a tie, a sports coat. Spiffy (Carver 32). At this point, the mans ideas about the blind peoples appearance had been contradicted. When the man realized that his assumptions about Robert were false, and that they actually shared some things in common, he began to feel more comfortable with Robert, even being, glad for the company (Carver 84). This is the first time the man was being polite and friendly to Robert. Soon after, a bond between Robert and the man had begun after a program about cathedrals came on the television. The man becomes aware that, There were times when the Englishman who was telling the thing would shut up, would simply let the camera move around over the cathedrals (Carver 92). The silence in the room became awkward for him because he realized that Robert did not know what was happening when the narrator stopped speaking. Since the mans stereotypes were beginning to shed during the cathedral conversation, the man came more open with Robert, and realized that Robert is not much different from the rest of society. The two of them began to  compare how well each of them envisioned the cathedrals. Robert gave facts that were heard tight off the television, demonstrating his limited knowledge. The man also attempted to describe this cathedrals, theyre really big,(Carver 100) he explains, theyre massive(Carver 100). At this point, he understood just how little he actually knew about the cathedrals, even with a picture right in front of him. Now the man is awakened to his newly, humbled, equal position along side Robert, with the help of the cathedral. With the mans stereotypes diminishing, he became to trust Robert and is giving him a chance to build a relationship. When Robert brought up the idea for the man to draw the cathedral out as Robert follows, the man was able to appreciate what blind people go through. When he finished the drawing, Robert said, Well are you looking?(Carver 125) The man replied, Its really something(Carver 126). The man had allowed himself to experience, even if for just a few minutes, what Robert experiences every second of his life. This was the same man, who only a few hours ago did not want Robert to be in his house. Overcoming prejudices, fears, and misconceptions are only possible when you allow yourself to get close to a person who these feelings are directed towards. By the man becoming close with Robert, he was capable to see what was necessary to gain an understanding of what life is like for a blind man, with the help of the vision of the cathedral. The man began to draw the cathedral to try and help Robert visualize what one looked like. What he did not realize is that Robert was actually helping him visualize what blindness felt like.

Pakistan Commercial Banks Risk Management

Pakistan Commercial Banks Risk Management ABSTRACT The agreement on international banking regulations dealing with how the banks handle the risk, the Basel Accord mainly focuses on the credit risk; according the Basel accord the bank assets divided into five main categories according to how they are risky. The five main categories are as (1) is assets without risk means 0% risk weighted, second one is 10% risk weighted, 3rd is 20% weighted, 4th is 50% weighted and last one is 100% weighted. When the banks perform international transactions they are required according the Basel Accord to hold assets minimum 8% aggregated risk according the Basel 1. The Basel 1 was written in 1988 by the Basel committee on banking supervision. All Banks of G-10 countries have try to implement this accord since the early 1990s. Now a days it is considered largely outdated and Basel committee working on Basel 1 to changing process in the shape of Basel II. This is also called Basel I accord. The document Basel I Capital Accord mainly designs to evaluate the capital in relation with the credit risk, and also the risk that can be a cause of losses in which the risk will occur if the party fail or unable to fulfill the obligations. It is mainly focus on the risk increasing modeling research process that is improvement toward the risk increasing research mode; however, it is over simplified calculations, and also classifications that have been simultaneously called for its disappearance, but the improvement in the shape of the Basel II Capital Accord and also other further agreements that are the sign for the continuously refinement for the risk and capital in the banking sector. Nevertheless, the document Basel I accords, will remain the first international instrument that evaluate the importance of risk with the relationship to capital, and also will remain as a milestone in the banking sector like finance and banking history. This study is mainly related to the risk management practices being followed by the commercial Banks in Pakistan. The questionnaire is used as a main tool to collect primary data and check the extent to which the risk management practices are being carried upon by the commercial banks in Pakistan. The six important aspects of risk management process are categorized as one dependent and five explanatory variables. This study aims to investigate the awareness about risk management practices within the banking sector of Pakistan. This study is comprised of data collected through both, primary as well as secondary sources. The purpose of using primary source data is to check the extent to which different risk management practices have been followed by the commercial banks in Pakistan. Primary data is collected through the use of a questionnaire. The questionnaire comprises a number of statements under one macro statement. It includes Risk Management Practices (RMP) as the dependent varia ble, and different aspects of risk management as the independent or explanatory variables. Whereas, the objective to use secondary data is to link the risk weighted Capital Adequacy Ratio to the different financial indicators of the commercial banks that are used to measure their soundness. CHAPTER 2 LITERATURE REVIEW Risk management practices by the Commercial Banks Within the last few years, a number of studies have provided the discipline into the practice of risk management within the corporate and banking sector. An insight of related studies is as follows: Amran, et al. (2009), this article mention the possible availability of risk exposà © in the annual reports of the Malaysian companies. The study was aimed to empirically test the characteristics of the sampled companies. And also the level of risk faced by Malaysian companies with the disclosure made was also assessed and compared. The findings of the research revealed that the strategic risk came on the top, followed by the operations and empowerment risks being disclosed by the selected companies. The regression analysis proved significantly that size of the companies did matter. The stakeholder theory explains well this finding by stating that As company grows bigger, it will have a large pool of stakeholders, who would be interested in knowing the affairs of the company. The extent of risk disclosure was also found to be influenced by the nature of industry. As explored within this study, infrastructure and technology industries influenced the companies to have more risk inform ation disclosed. Hassan, A. (2009), made a study Risk Management Practices of Islamic Banks of Brunei Darussalam to assess the degree to which the Islamic banks in Brunei Darussalam implemented risk management practices and carried them out thoroughly by using different techniques to deal with various kinds of risks. The results of the study showed that, like the conventional banking system, Islamic banking was also subjected to a variety of risks due to the unique range of offered products in addition to conventional products. The results showed that there was a remarkable understanding of risk and risk management by the staff working in the Islamic Banks of Brunei Darussalam, which showed their ability to pave their way towards successful risk management. The major risks that were faced by Brunei banks that was the Foreign exchange risk as well as credit risk and also operating risk. For the analysis regression model was used to explain the results which shown that the Risk Identification, or Risk Assessment and Analysis were also the most uncontrollable variables and the Islamic banks in Brunei needed to give more attention to those variables to make their Risk Management Practices more effective by understanding the true application of Basel-II Accord to improve the efficiency of Islamic Bank’s risk management systems. Al-Tamimi (2008) studied the relationship among the readiness of implementing Basel II Accord and resources needed for its implementation in UAE banks. Results of the research revealed that the banks in UAE were aware of the benefits, impact and challenges associated in the implementation of Basel II Accord. However, the research did not confirm any positive relationship between UAE banks readiness for the implementation of Basel II and impact of the implementation. The relationship between readiness and anticipated cost of implementation was also not confirmed. No significant difference was found in the level of Basel II Accord’s preparation between the UAE national and foreign banks. It was concluded that there was a significant difference in the level of the UAE banks Basel II based on employees education level. The results supported the importance of education level needed for the implementation of Basel II Accord. Al-Tamimi and Al- Mazrooei (2007) provide the comprehensive study relating of Bank’s Risk Management of UAE National and Foreign Banks. The outcome of this research is to find out that there are three most important types of risks facing the UAE commercial banks that were foreign exchange risk, 2nd one followed by credit risk and 3rd one is operating risk. And the result also found that the bank of UAE were also efficiently handle the risk; but the variables like as the risk identification, risk assessment and also analysis proved that the banks are more efficient in risk management process. Finally, the outcome of the result showed that there was a huge difference if we compare the UAE National banks and foreign Banks in the practicing the risk assessment and risk analysis as well as risk monitoring and risk controlling process. Koziol and Lawrenz (2008) provided a study in which they assessed the risk of bank failures. They said that assessing the risk related to bank failures is the paramount concern of bank regulations. They argued that in order to assess the default risk of a bank, it is important considering its financing decisions as an endogenous dynamic process. The research study provided a continuous-time model, where banks chose the deposit volume in order to trade off the benefits of earning deposit premiums against the costs that would occur at future capital structure adjustments. Major findings suggested that the dynamic endogenous financing decision introduced an important self-regulation mechanism. Basel Core Principles and Bank Risk: Does Compliance Matter? The recent financial crisis has sparked widespread calls for reforms of regulation and supervision. The initial reaction to the crisis was one of disbelief: how could such extensive financial distress emerge in countries where the supervision of financial risk had been thought to be the best in the world? Indeed, the regulatory standards and protocols of the advanced countries at the center of the financial storm were being emulated worldwide through the progressive adoption of the international Basel capital standards and the Basel Core Principles for Effective Bank Supervision (BCPs). The crisis exposed significant weaknesses in the financial system regulatory and supervisory framework worldwide, and has spawned a growing debate about the role these weaknesses may have played in causing and propagating the crisis. As a result, reform of regulation and supervision is a top priority for policymakers, and many countries are working to upgrade their frameworks. But what should the reforms focus on? What constitutes good regulation and supervision? Which elements are most important for ensuring bank soundness? What should be the scope of regulation? To date, the best practices in supervision and regulation have been embodied by the BCPs. These principles were issued in 1997 by the Basel Committee on Bank Supervision, comprising representatives from bank supervisory agencies from advanced countries. Since then, most countries in the world have stated their intent to adopt and comply with the BCPs, making them a global standard for bank regulators. Importantly, since 1999, the IMF and the World Bank have conducted evaluations of countries’ compliance with these principles, mainly within their joint Financial Sector Assessment program (FSAP). The assessments are conducted according to a standardized methodology developed by the Basel Committee and therefore provide a unique source of information about the quality of supervision and regulation around the world. Hence the international community has made significant investments in developing these principles, encouraging their wide-spread adoption, and assessing progress with their compliance. In light of the recent crisis and the resulting skepticism about the effectiveness of existing approaches to regulation and supervision, it is natural to ask if compliance with the global standard of good regulation is associated with bank soundness. Specifically, they test whether better compliance with BCPs is associated with safer banks. They also look at whether compliance with different elements of the BCP framework is more closely associated with bank soundness to identify if there are specific areas which would help prioritize reform efforts to improve supervision. The paper extends their previous work (Demirgà ¼Ãƒ §-Kunt, Detragiache and Tressel, 2008: henceforth DDT), in which they showed that banks receive more favorable financial strength ratings from Moody’s in countries with better compliance with BCPs related to information provision, while compliance with other principles does not affect ratings significantly. The policy message from this study was that countries should give priority to strengthening regulation and regulation in the area of information provision (both to the market and to supervisors) relative to other areas covered by the core principles. Using rating information to proxy bank risk significantly limited the sample size in that study, making it necessary to exclude many smaller banks and many banks from lower income countries. Furthermore, after the recent crisis, the credibility of credit ratings as indicators of bank risk has also diminished, questioning the merit of using these ratings in the analysis. In this paper, they explore whether BCP compliance affects bank soundness, but instead of using ratings they capture bank soundness using the Z-score, which is the number of standard deviations by which bank returns have to fall to wipe out bank equity (Boyd and Runkle, 1993). Because they can construct Z-scores using just accounting information, and because assessment data for additional countries have also become available, they can extend the sample size considerably relative to our earlier study, to over 3,000 banks from 86 countries (compared to 200 banks from 37 countries analyzed in DDT). This is not just a simple increase in sample size: the sample of rated banks was not a representative sample, because rated banks tend to be larger, more internationally active, and more likely to adhere to international accounting standards. From a policy point of view, they would like to investigate the effect of BCP compliance on all types of banks operating in different country circumstan ces, rather than a select subgroup. In this study, the richer sample allows us to explore whether the relationship between BCPs and bank soundness varies across different types of banks. All in all, they do not find support for the hypothesis that better compliance with BCPs results in sounder banks as measured by Z-scores. This result holds after controlling for the macroeconomic environment, institutional quality, and bank characteristics. They also fail to find a significant relationship when they consider different samples, such a sample of rated banks only, a sample including only commercial banks, and samples including only the largest financial institutions. In an additional test, they calculate aggregate Z-scores at the country level to try to capture the stability of the system as a while rather than that of individual banks, but also this measure of soundness is not significantly related to overall BCP compliance. When they explore the relationship between soundness and compliance with specific groups of principles, which refer to separate areas of prudential supervision and regulation, they continue to find no evidence that good compliance is related to im proved soundness. If anything, they find that stronger compliance with principles related to the power of supervisors to license banks and regulate market structure are associated with riskier banks. While these results cast doubts on whether international efforts to improve financial regulation and supervision should continue to place a strong emphasis on BCPs, a number of caveats are in order. First, insignificant results may simply indicate that accounting-based measures, such as Zscores, do not adequately capture bank soundness, especially for small banks and in low income countries, where accounting standards tend to be poor. They may also reflect low quality in the assessment of BCP compliance, especially in countries where laws and regulations on the books may carry little weight. It might be also argued that assessments are not comparable across countries, despite the best efforts of expert supervisors and internal reviewing teams at the IMF and the World Bank to ensure a uniform methodology and uniform standards. If their negative results arise because compliance assessments do not reflect reality or are not comparable across countries, then at a minimum they should lead us to question the value of these assessments in ensuring that supervision measures up to global standards. Review of related literature of this paper is as follows: Defining good regulatory and supervisory practices is a difficult and complicated task. Barth, Caprio, and Levine (2001, 2004, and 2006) were the first to compile and analyze an extensive database on banking sector laws and regulations using various surveys of regulators around the world, and to study the relationship between alternative regulatory strategies and outcomes. This research finds that regulatory approaches that facilitate private sector monitoring of banks (such as disclosure of reliable, comprehensive and timely information) and strengthen incentives for greater market monitoring (for example by limiting deposit insurance) improve bank performance and stability. In contrast, boosting official supervisory oversight and disciplinary powers and tightening capital standards does not lead to banking sector development, nor does it improve bank efficiency, reduce corruption in lending, or lower banking system fragility. They interpret their findings as a challenge to the Basel Committee’s influential approach to bank regulation which heavily emphasizes ca pital and official supervision. An important limitation of this type of survey is that it mainly captures rules and regulations that are on the books rather than actual implementation. IMF and the World Bank financial sector assessments have often found implementation to be lacking, particularly in low income countries, so that cross-country comparisons of what is on the books may hide substantial variation in the quality of supervision and regulation. BCP assessments have the advantage of taking into account implementation. Of course, assessing how rules and regulations are implemented and enforced in practice is not an exact science, and individual assessments may be influenced by factors such as the assessors’ experience and the regulatory culture they are most familiar with. Nevertheless, although it is difficult to eliminate subjectivity completely, assessments are based on a standardized methodology and are carried out by experienced international assessors with broad c ountry experience. Cihak and Tieman (2008) analyze the quality of financial sector regulation and supervision using both Barth, Caprio and Levine’s survey data and BCP assessments. They find that regulation and supervision in high-income countries is generally of higher quality than in lower income countries. They also note that the correlation between survey data and BCP data tend to be low, always less than 50 percent and in many cases in the 20-30 percent range, suggesting that taking into account implementation may indeed make an important difference. A number of papers also use BCP assessments to study bank regulation and performance. Sundararajan, Marston, and Basu (2001) use a sample of 25 countries to examine the relationship between an overall index of BCP compliance and two indicators of bank soundness: nonperforming loans (NPLs) and loan spreads. They find BCP compliance not to be a significant determinant of these measures of soundness. Podpiera (2004) extends the set of countries and finds that better BCP compliance lowers NPLs. Das et al. (2005) relates bank soundness to a broader concept of regulatory governance, which encompasses compliance with the BCPs as well as compliance with standards and codes for monetary and financial policies. Better regulatory governance is found to be associated with sounder banks, particularly in countries with better institutions. In this paper, as already discussed they rely on the Z-score to measure bank soundness. While the Z-score has its limitations, they believe it is an improvement over measures used in previous studies, namely NPLs, loan spreads, interest margins, and capital adequacy. Because different countries have different reporting rules, NPLs are notoriously difficult to compare across countries. On the other hand, loan spreads or interest margins and capitalization are affected by a variety of forces other than fragility, such as market structure, differences in risk-free interest rates and operating costs, and varying capital regulation. Thus, cross-country comparability is a serious issue. In contrast with ratings, Z-scores do not rely on the subjective judgment of rating agencies’ analysts. Results from the baseline regression, relating bank soundness measured by the Z-score to the degree of compliance with the BCPs. In the sample including all countries, the Zscore is higher, indicating a sounder bank, for banks with lower operating costs in countries with higher GDP per capita. Also, non-commercial banks tend to have higher Z-scores, while the other control variables are not significant. The coefficient of the BCP compliance index is positive but not significant. If they exclude Japanese banks, which account for over 20 percent of the sample, the fit of the model improves markedly (the R-squared increases from 10 percent to 19 percent) and the coefficients of many regressors change substantially.12 This suggests that the variables explaining the Z-score of Japanese banks may be somewhat different than for the rest of the sample, perhaps because of the lingering effects of Japan’s prolonged banking crisis on bank balance sheets. For example, in the sample excluding Japan inflation and the rule of law index are significant (with the expected coefficients), while GDP per capita is not (though the coefficient remains positive). Also, banks with a higher ratio of net loans to assets have higher Z-scores, perhaps because Basel regulation mandating minimum levels of risk-adjustment capital forces these banks to hold more equity. Also, in the sample excluding Japan larger banks have lower Z-scores, likely because they tend to hold less capital than smaller banks. Despite these differences, the coefficient of the BCP compliance index remains insignificantly different from zero also in the sample without Japanese banks. The same is true when they add to the regression additional macro controls, such as exchange rate appreciation, private credit, or the sovereign rating. In the regressions, they explore how the relationship between BCP compliance and bank soundness changes if they alter the sample composition to include various categories of financial institutions to explore whether BCP compliance may affect soundness for alternative types of banks. All these results refer to the sample excluding Japan, so that th e overrepresentation of Japanese banks does not distort the results. The first exercise is to examine the widest sample possible, i.e. one that includes investment banks/securities houses, medium and long-term credit banks, nonbank credit institutions, and specialized government credit institutions. These are institutions that in most countries are unlikely to fall under the perimeter of bank regulation and supervision, so they have excluded them from the baseline sample. When they include them, the sample size grows by 25 percent, but the main regression results are unchanged. In particular, bank soundness is not significantly affected by compliance with the BCPs. If they restrict the sample to commercial banks only, thereby losing about 300 banks compared to the baseline sample, once again they find that regression results remain very close to the baseline. When they focus only on banks rated by Moody’s, as in our earlier work, the sample shrinks considerably (to just over 300 banks), and the coefficient of the BCP compliance index becomes positive and significant, albeit only at the 10 percent confidence level. Thus, BCP compliance seems to have some positive effect on the soundness of this specific group of banks. To explore this issue further, they ask whether this result is driven by the fact that rated banks are larger banks. To do so, they consider two alternative samples: the first includes the largest 10 percent of banks within each country and the second includes the largest 20 percent of banks in the entire sample. In both cases, the BCP compliance index has an insignificant coefficient, as in the baseline sample. The BCP compliance index is the weighted sum of compliance scores for several individual chapters of the Core Principles. Could it be that, even though overall compliance does not seem to matter for bank soundness, some aspects of the Core Principles might be relevant? In fact, it may be possible that the overall index is not significant because of offsetting effects of its different components. In fact, in our previous study of Moody’s ratings, they found that, although overall compliance did not seem to matter, higher financial strength ratings were associated with better compliance with principles related to information provision to supervisors. They address this question by re-running the baseline regressions breaking down the compliance index into seven components, based on the standard grouping of principles used by the Basel Committee. An important caveat is that compliance scores are fairly strongly correlated, which may make it difficult to disentangle the effect of one set of principles from the others. They replicate the regression for different samples of banks to investigate the robustness of the results. There is only one component of the compliance index that has a fairly robust relationship with bank Z-scores, and that is compliance with Chapter 2 of the BCP, i.e. principles having to do with supervisors’ powers to regulate bank licensing and structure. Interestingly, this component of the index is negatively correlated with bank soundness, so that banks in countries were regulators have better defined powers to give out licenses and regulate bank activities tend to be riskier. This result holds in all th e samples except those including only the largest banks. This finding supports the contention that supervisory systems that tend to empower supervisors do not work well (Barth, Caprio, and Levine, 2001, 2004, 2006). So far, they have considered individual bank risk. In principle, bank supervision and regulation should be primarily concerned with systemic risk, rather than individual bank risk, although in practice it is not always easy to make this distinction. Could it be that BCP compliance, while not relevant to individual bank soundness, is important to ensure the stability of system as a whole? To address this question, it would be ideal to test whether BCP compliance reduces the probability of a financial crisis. However, since crises are rare events, this type of test requires a panel of data; since they have BCP compliance assessments only at a point in time, they are restricted to cross-sectional data. Nonetheless, to explore this question they compute a rough measure of systemic soundness as the aggregate equivalent of the individual bank Z-score. More specifically, they aggregate profits and equity of all the banks in the country (for which they have data), they compute the standard d eviation of aggregate profits, and then they compute an aggregate Z-score. This measure tells us by how many standard deviations banking system profits must fall to exhaust all the capital in the banking system. They then regress this measure on the BCP compliance score and a number of macroeconomic control variables. Their measure of systemic soundness is correlated with the macro variables as one might expect: higher growth, low inflation, low inflation volatility, appreciation of the currency, favorable sovereign ratings are all significantly associated with higher values of the aggregate Z-score. Once again, though, the BCP compliance index does not seem to be a significant determinant of banking system soundness. Though it is positive, the coefficient of the BCP index is small and not statistically significant in any specification. Remarks While the causes and consequences of the recent financial crisis will continue to be debated for years to come, there is emerging consensus that the crisis has revealed significant weaknesses in the regulatory and supervisory system. Resulting calls for reform have led to numerous proposals and policymakers in many countries are hard at work to upgrade their regulatory frameworks. This paper seeks to inform the on-going reform process by providing an analysis of how existing regulations and their application are associated with bank soundness. Specifically, they study whether compliance with Basel Core Principles for effective banking supervision (BCPs) is associated with lower bank risk, as measured Z-scores. They find no evidence of a robust statistical relationship linking better compliance with BCPs and improved bank soundness. The analysis of aggregate Z-scores to capture systemic stability issues yields similarly insignificant results. If anything, they find that compliance wit h a specific group of principles, those giving supervisors powers to regulate bank licensing and structure is associated with riskier banks, potentially suggesting that such powers may be misused in practice. While our results may reflect the difficulty of capturing bank risk using accounting measures, or the inability of assessors to carry out evaluations that are comparable across countries, nevertheless they raise questions about the relevance of the Basel Core Principles, the current emphasis on these principles as key to effective supervision, and the wisdom of carrying out costly periodic compliance reviews of BCP implementation in the IMF/World Bank Financial Sector Assessment Programs. Pakistan Commercial Banks Risk Management Pakistan Commercial Banks Risk Management ABSTRACT The agreement on international banking regulations dealing with how the banks handle the risk, the Basel Accord mainly focuses on the credit risk; according the Basel accord the bank assets divided into five main categories according to how they are risky. The five main categories are as (1) is assets without risk means 0% risk weighted, second one is 10% risk weighted, 3rd is 20% weighted, 4th is 50% weighted and last one is 100% weighted. When the banks perform international transactions they are required according the Basel Accord to hold assets minimum 8% aggregated risk according the Basel 1. The Basel 1 was written in 1988 by the Basel committee on banking supervision. All Banks of G-10 countries have try to implement this accord since the early 1990s. Now a days it is considered largely outdated and Basel committee working on Basel 1 to changing process in the shape of Basel II. This is also called Basel I accord. The document Basel I Capital Accord mainly designs to evaluate the capital in relation with the credit risk, and also the risk that can be a cause of losses in which the risk will occur if the party fail or unable to fulfill the obligations. It is mainly focus on the risk increasing modeling research process that is improvement toward the risk increasing research mode; however, it is over simplified calculations, and also classifications that have been simultaneously called for its disappearance, but the improvement in the shape of the Basel II Capital Accord and also other further agreements that are the sign for the continuously refinement for the risk and capital in the banking sector. Nevertheless, the document Basel I accords, will remain the first international instrument that evaluate the importance of risk with the relationship to capital, and also will remain as a milestone in the banking sector like finance and banking history. This study is mainly related to the risk management practices being followed by the commercial Banks in Pakistan. The questionnaire is used as a main tool to collect primary data and check the extent to which the risk management practices are being carried upon by the commercial banks in Pakistan. The six important aspects of risk management process are categorized as one dependent and five explanatory variables. This study aims to investigate the awareness about risk management practices within the banking sector of Pakistan. This study is comprised of data collected through both, primary as well as secondary sources. The purpose of using primary source data is to check the extent to which different risk management practices have been followed by the commercial banks in Pakistan. Primary data is collected through the use of a questionnaire. The questionnaire comprises a number of statements under one macro statement. It includes Risk Management Practices (RMP) as the dependent varia ble, and different aspects of risk management as the independent or explanatory variables. Whereas, the objective to use secondary data is to link the risk weighted Capital Adequacy Ratio to the different financial indicators of the commercial banks that are used to measure their soundness. CHAPTER 2 LITERATURE REVIEW Risk management practices by the Commercial Banks Within the last few years, a number of studies have provided the discipline into the practice of risk management within the corporate and banking sector. An insight of related studies is as follows: Amran, et al. (2009), this article mention the possible availability of risk exposà © in the annual reports of the Malaysian companies. The study was aimed to empirically test the characteristics of the sampled companies. And also the level of risk faced by Malaysian companies with the disclosure made was also assessed and compared. The findings of the research revealed that the strategic risk came on the top, followed by the operations and empowerment risks being disclosed by the selected companies. The regression analysis proved significantly that size of the companies did matter. The stakeholder theory explains well this finding by stating that As company grows bigger, it will have a large pool of stakeholders, who would be interested in knowing the affairs of the company. The extent of risk disclosure was also found to be influenced by the nature of industry. As explored within this study, infrastructure and technology industries influenced the companies to have more risk inform ation disclosed. Hassan, A. (2009), made a study Risk Management Practices of Islamic Banks of Brunei Darussalam to assess the degree to which the Islamic banks in Brunei Darussalam implemented risk management practices and carried them out thoroughly by using different techniques to deal with various kinds of risks. The results of the study showed that, like the conventional banking system, Islamic banking was also subjected to a variety of risks due to the unique range of offered products in addition to conventional products. The results showed that there was a remarkable understanding of risk and risk management by the staff working in the Islamic Banks of Brunei Darussalam, which showed their ability to pave their way towards successful risk management. The major risks that were faced by Brunei banks that was the Foreign exchange risk as well as credit risk and also operating risk. For the analysis regression model was used to explain the results which shown that the Risk Identification, or Risk Assessment and Analysis were also the most uncontrollable variables and the Islamic banks in Brunei needed to give more attention to those variables to make their Risk Management Practices more effective by understanding the true application of Basel-II Accord to improve the efficiency of Islamic Bank’s risk management systems. Al-Tamimi (2008) studied the relationship among the readiness of implementing Basel II Accord and resources needed for its implementation in UAE banks. Results of the research revealed that the banks in UAE were aware of the benefits, impact and challenges associated in the implementation of Basel II Accord. However, the research did not confirm any positive relationship between UAE banks readiness for the implementation of Basel II and impact of the implementation. The relationship between readiness and anticipated cost of implementation was also not confirmed. No significant difference was found in the level of Basel II Accord’s preparation between the UAE national and foreign banks. It was concluded that there was a significant difference in the level of the UAE banks Basel II based on employees education level. The results supported the importance of education level needed for the implementation of Basel II Accord. Al-Tamimi and Al- Mazrooei (2007) provide the comprehensive study relating of Bank’s Risk Management of UAE National and Foreign Banks. The outcome of this research is to find out that there are three most important types of risks facing the UAE commercial banks that were foreign exchange risk, 2nd one followed by credit risk and 3rd one is operating risk. And the result also found that the bank of UAE were also efficiently handle the risk; but the variables like as the risk identification, risk assessment and also analysis proved that the banks are more efficient in risk management process. Finally, the outcome of the result showed that there was a huge difference if we compare the UAE National banks and foreign Banks in the practicing the risk assessment and risk analysis as well as risk monitoring and risk controlling process. Koziol and Lawrenz (2008) provided a study in which they assessed the risk of bank failures. They said that assessing the risk related to bank failures is the paramount concern of bank regulations. They argued that in order to assess the default risk of a bank, it is important considering its financing decisions as an endogenous dynamic process. The research study provided a continuous-time model, where banks chose the deposit volume in order to trade off the benefits of earning deposit premiums against the costs that would occur at future capital structure adjustments. Major findings suggested that the dynamic endogenous financing decision introduced an important self-regulation mechanism. Basel Core Principles and Bank Risk: Does Compliance Matter? The recent financial crisis has sparked widespread calls for reforms of regulation and supervision. The initial reaction to the crisis was one of disbelief: how could such extensive financial distress emerge in countries where the supervision of financial risk had been thought to be the best in the world? Indeed, the regulatory standards and protocols of the advanced countries at the center of the financial storm were being emulated worldwide through the progressive adoption of the international Basel capital standards and the Basel Core Principles for Effective Bank Supervision (BCPs). The crisis exposed significant weaknesses in the financial system regulatory and supervisory framework worldwide, and has spawned a growing debate about the role these weaknesses may have played in causing and propagating the crisis. As a result, reform of regulation and supervision is a top priority for policymakers, and many countries are working to upgrade their frameworks. But what should the reforms focus on? What constitutes good regulation and supervision? Which elements are most important for ensuring bank soundness? What should be the scope of regulation? To date, the best practices in supervision and regulation have been embodied by the BCPs. These principles were issued in 1997 by the Basel Committee on Bank Supervision, comprising representatives from bank supervisory agencies from advanced countries. Since then, most countries in the world have stated their intent to adopt and comply with the BCPs, making them a global standard for bank regulators. Importantly, since 1999, the IMF and the World Bank have conducted evaluations of countries’ compliance with these principles, mainly within their joint Financial Sector Assessment program (FSAP). The assessments are conducted according to a standardized methodology developed by the Basel Committee and therefore provide a unique source of information about the quality of supervision and regulation around the world. Hence the international community has made significant investments in developing these principles, encouraging their wide-spread adoption, and assessing progress with their compliance. In light of the recent crisis and the resulting skepticism about the effectiveness of existing approaches to regulation and supervision, it is natural to ask if compliance with the global standard of good regulation is associated with bank soundness. Specifically, they test whether better compliance with BCPs is associated with safer banks. They also look at whether compliance with different elements of the BCP framework is more closely associated with bank soundness to identify if there are specific areas which would help prioritize reform efforts to improve supervision. The paper extends their previous work (Demirgà ¼Ãƒ §-Kunt, Detragiache and Tressel, 2008: henceforth DDT), in which they showed that banks receive more favorable financial strength ratings from Moody’s in countries with better compliance with BCPs related to information provision, while compliance with other principles does not affect ratings significantly. The policy message from this study was that countries should give priority to strengthening regulation and regulation in the area of information provision (both to the market and to supervisors) relative to other areas covered by the core principles. Using rating information to proxy bank risk significantly limited the sample size in that study, making it necessary to exclude many smaller banks and many banks from lower income countries. Furthermore, after the recent crisis, the credibility of credit ratings as indicators of bank risk has also diminished, questioning the merit of using these ratings in the analysis. In this paper, they explore whether BCP compliance affects bank soundness, but instead of using ratings they capture bank soundness using the Z-score, which is the number of standard deviations by which bank returns have to fall to wipe out bank equity (Boyd and Runkle, 1993). Because they can construct Z-scores using just accounting information, and because assessment data for additional countries have also become available, they can extend the sample size considerably relative to our earlier study, to over 3,000 banks from 86 countries (compared to 200 banks from 37 countries analyzed in DDT). This is not just a simple increase in sample size: the sample of rated banks was not a representative sample, because rated banks tend to be larger, more internationally active, and more likely to adhere to international accounting standards. From a policy point of view, they would like to investigate the effect of BCP compliance on all types of banks operating in different country circumstan ces, rather than a select subgroup. In this study, the richer sample allows us to explore whether the relationship between BCPs and bank soundness varies across different types of banks. All in all, they do not find support for the hypothesis that better compliance with BCPs results in sounder banks as measured by Z-scores. This result holds after controlling for the macroeconomic environment, institutional quality, and bank characteristics. They also fail to find a significant relationship when they consider different samples, such a sample of rated banks only, a sample including only commercial banks, and samples including only the largest financial institutions. In an additional test, they calculate aggregate Z-scores at the country level to try to capture the stability of the system as a while rather than that of individual banks, but also this measure of soundness is not significantly related to overall BCP compliance. When they explore the relationship between soundness and compliance with specific groups of principles, which refer to separate areas of prudential supervision and regulation, they continue to find no evidence that good compliance is related to im proved soundness. If anything, they find that stronger compliance with principles related to the power of supervisors to license banks and regulate market structure are associated with riskier banks. While these results cast doubts on whether international efforts to improve financial regulation and supervision should continue to place a strong emphasis on BCPs, a number of caveats are in order. First, insignificant results may simply indicate that accounting-based measures, such as Zscores, do not adequately capture bank soundness, especially for small banks and in low income countries, where accounting standards tend to be poor. They may also reflect low quality in the assessment of BCP compliance, especially in countries where laws and regulations on the books may carry little weight. It might be also argued that assessments are not comparable across countries, despite the best efforts of expert supervisors and internal reviewing teams at the IMF and the World Bank to ensure a uniform methodology and uniform standards. If their negative results arise because compliance assessments do not reflect reality or are not comparable across countries, then at a minimum they should lead us to question the value of these assessments in ensuring that supervision measures up to global standards. Review of related literature of this paper is as follows: Defining good regulatory and supervisory practices is a difficult and complicated task. Barth, Caprio, and Levine (2001, 2004, and 2006) were the first to compile and analyze an extensive database on banking sector laws and regulations using various surveys of regulators around the world, and to study the relationship between alternative regulatory strategies and outcomes. This research finds that regulatory approaches that facilitate private sector monitoring of banks (such as disclosure of reliable, comprehensive and timely information) and strengthen incentives for greater market monitoring (for example by limiting deposit insurance) improve bank performance and stability. In contrast, boosting official supervisory oversight and disciplinary powers and tightening capital standards does not lead to banking sector development, nor does it improve bank efficiency, reduce corruption in lending, or lower banking system fragility. They interpret their findings as a challenge to the Basel Committee’s influential approach to bank regulation which heavily emphasizes ca pital and official supervision. An important limitation of this type of survey is that it mainly captures rules and regulations that are on the books rather than actual implementation. IMF and the World Bank financial sector assessments have often found implementation to be lacking, particularly in low income countries, so that cross-country comparisons of what is on the books may hide substantial variation in the quality of supervision and regulation. BCP assessments have the advantage of taking into account implementation. Of course, assessing how rules and regulations are implemented and enforced in practice is not an exact science, and individual assessments may be influenced by factors such as the assessors’ experience and the regulatory culture they are most familiar with. Nevertheless, although it is difficult to eliminate subjectivity completely, assessments are based on a standardized methodology and are carried out by experienced international assessors with broad c ountry experience. Cihak and Tieman (2008) analyze the quality of financial sector regulation and supervision using both Barth, Caprio and Levine’s survey data and BCP assessments. They find that regulation and supervision in high-income countries is generally of higher quality than in lower income countries. They also note that the correlation between survey data and BCP data tend to be low, always less than 50 percent and in many cases in the 20-30 percent range, suggesting that taking into account implementation may indeed make an important difference. A number of papers also use BCP assessments to study bank regulation and performance. Sundararajan, Marston, and Basu (2001) use a sample of 25 countries to examine the relationship between an overall index of BCP compliance and two indicators of bank soundness: nonperforming loans (NPLs) and loan spreads. They find BCP compliance not to be a significant determinant of these measures of soundness. Podpiera (2004) extends the set of countries and finds that better BCP compliance lowers NPLs. Das et al. (2005) relates bank soundness to a broader concept of regulatory governance, which encompasses compliance with the BCPs as well as compliance with standards and codes for monetary and financial policies. Better regulatory governance is found to be associated with sounder banks, particularly in countries with better institutions. In this paper, as already discussed they rely on the Z-score to measure bank soundness. While the Z-score has its limitations, they believe it is an improvement over measures used in previous studies, namely NPLs, loan spreads, interest margins, and capital adequacy. Because different countries have different reporting rules, NPLs are notoriously difficult to compare across countries. On the other hand, loan spreads or interest margins and capitalization are affected by a variety of forces other than fragility, such as market structure, differences in risk-free interest rates and operating costs, and varying capital regulation. Thus, cross-country comparability is a serious issue. In contrast with ratings, Z-scores do not rely on the subjective judgment of rating agencies’ analysts. Results from the baseline regression, relating bank soundness measured by the Z-score to the degree of compliance with the BCPs. In the sample including all countries, the Zscore is higher, indicating a sounder bank, for banks with lower operating costs in countries with higher GDP per capita. Also, non-commercial banks tend to have higher Z-scores, while the other control variables are not significant. The coefficient of the BCP compliance index is positive but not significant. If they exclude Japanese banks, which account for over 20 percent of the sample, the fit of the model improves markedly (the R-squared increases from 10 percent to 19 percent) and the coefficients of many regressors change substantially.12 This suggests that the variables explaining the Z-score of Japanese banks may be somewhat different than for the rest of the sample, perhaps because of the lingering effects of Japan’s prolonged banking crisis on bank balance sheets. For example, in the sample excluding Japan inflation and the rule of law index are significant (with the expected coefficients), while GDP per capita is not (though the coefficient remains positive). Also, banks with a higher ratio of net loans to assets have higher Z-scores, perhaps because Basel regulation mandating minimum levels of risk-adjustment capital forces these banks to hold more equity. Also, in the sample excluding Japan larger banks have lower Z-scores, likely because they tend to hold less capital than smaller banks. Despite these differences, the coefficient of the BCP compliance index remains insignificantly different from zero also in the sample without Japanese banks. The same is true when they add to the regression additional macro controls, such as exchange rate appreciation, private credit, or the sovereign rating. In the regressions, they explore how the relationship between BCP compliance and bank soundness changes if they alter the sample composition to include various categories of financial institutions to explore whether BCP compliance may affect soundness for alternative types of banks. All these results refer to the sample excluding Japan, so that th e overrepresentation of Japanese banks does not distort the results. The first exercise is to examine the widest sample possible, i.e. one that includes investment banks/securities houses, medium and long-term credit banks, nonbank credit institutions, and specialized government credit institutions. These are institutions that in most countries are unlikely to fall under the perimeter of bank regulation and supervision, so they have excluded them from the baseline sample. When they include them, the sample size grows by 25 percent, but the main regression results are unchanged. In particular, bank soundness is not significantly affected by compliance with the BCPs. If they restrict the sample to commercial banks only, thereby losing about 300 banks compared to the baseline sample, once again they find that regression results remain very close to the baseline. When they focus only on banks rated by Moody’s, as in our earlier work, the sample shrinks considerably (to just over 300 banks), and the coefficient of the BCP compliance index becomes positive and significant, albeit only at the 10 percent confidence level. Thus, BCP compliance seems to have some positive effect on the soundness of this specific group of banks. To explore this issue further, they ask whether this result is driven by the fact that rated banks are larger banks. To do so, they consider two alternative samples: the first includes the largest 10 percent of banks within each country and the second includes the largest 20 percent of banks in the entire sample. In both cases, the BCP compliance index has an insignificant coefficient, as in the baseline sample. The BCP compliance index is the weighted sum of compliance scores for several individual chapters of the Core Principles. Could it be that, even though overall compliance does not seem to matter for bank soundness, some aspects of the Core Principles might be relevant? In fact, it may be possible that the overall index is not significant because of offsetting effects of its different components. In fact, in our previous study of Moody’s ratings, they found that, although overall compliance did not seem to matter, higher financial strength ratings were associated with better compliance with principles related to information provision to supervisors. They address this question by re-running the baseline regressions breaking down the compliance index into seven components, based on the standard grouping of principles used by the Basel Committee. An important caveat is that compliance scores are fairly strongly correlated, which may make it difficult to disentangle the effect of one set of principles from the others. They replicate the regression for different samples of banks to investigate the robustness of the results. There is only one component of the compliance index that has a fairly robust relationship with bank Z-scores, and that is compliance with Chapter 2 of the BCP, i.e. principles having to do with supervisors’ powers to regulate bank licensing and structure. Interestingly, this component of the index is negatively correlated with bank soundness, so that banks in countries were regulators have better defined powers to give out licenses and regulate bank activities tend to be riskier. This result holds in all th e samples except those including only the largest banks. This finding supports the contention that supervisory systems that tend to empower supervisors do not work well (Barth, Caprio, and Levine, 2001, 2004, 2006). So far, they have considered individual bank risk. In principle, bank supervision and regulation should be primarily concerned with systemic risk, rather than individual bank risk, although in practice it is not always easy to make this distinction. Could it be that BCP compliance, while not relevant to individual bank soundness, is important to ensure the stability of system as a whole? To address this question, it would be ideal to test whether BCP compliance reduces the probability of a financial crisis. However, since crises are rare events, this type of test requires a panel of data; since they have BCP compliance assessments only at a point in time, they are restricted to cross-sectional data. Nonetheless, to explore this question they compute a rough measure of systemic soundness as the aggregate equivalent of the individual bank Z-score. More specifically, they aggregate profits and equity of all the banks in the country (for which they have data), they compute the standard d eviation of aggregate profits, and then they compute an aggregate Z-score. This measure tells us by how many standard deviations banking system profits must fall to exhaust all the capital in the banking system. They then regress this measure on the BCP compliance score and a number of macroeconomic control variables. Their measure of systemic soundness is correlated with the macro variables as one might expect: higher growth, low inflation, low inflation volatility, appreciation of the currency, favorable sovereign ratings are all significantly associated with higher values of the aggregate Z-score. Once again, though, the BCP compliance index does not seem to be a significant determinant of banking system soundness. Though it is positive, the coefficient of the BCP index is small and not statistically significant in any specification. Remarks While the causes and consequences of the recent financial crisis will continue to be debated for years to come, there is emerging consensus that the crisis has revealed significant weaknesses in the regulatory and supervisory system. Resulting calls for reform have led to numerous proposals and policymakers in many countries are hard at work to upgrade their regulatory frameworks. This paper seeks to inform the on-going reform process by providing an analysis of how existing regulations and their application are associated with bank soundness. Specifically, they study whether compliance with Basel Core Principles for effective banking supervision (BCPs) is associated with lower bank risk, as measured Z-scores. They find no evidence of a robust statistical relationship linking better compliance with BCPs and improved bank soundness. The analysis of aggregate Z-scores to capture systemic stability issues yields similarly insignificant results. If anything, they find that compliance wit h a specific group of principles, those giving supervisors powers to regulate bank licensing and structure is associated with riskier banks, potentially suggesting that such powers may be misused in practice. While our results may reflect the difficulty of capturing bank risk using accounting measures, or the inability of assessors to carry out evaluations that are comparable across countries, nevertheless they raise questions about the relevance of the Basel Core Principles, the current emphasis on these principles as key to effective supervision, and the wisdom of carrying out costly periodic compliance reviews of BCP implementation in the IMF/World Bank Financial Sector Assessment Programs.