Compliance with the Basel Core Principles in Iranian Banking System

This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision improves bank soundness in Iranian banking system. We find a significant and positive relationship between bank soundness and compliance with principles. This relationship is robust to controlling for broad indexes of institutional quality, macroeconomic variables, sovereign ratings, as well as reverse causality. Measuring soundness through Z-scores that show the Basel Core Principles for Effective Banking Supervision (BCPs) improves bank soundness similar results. These findings emphasize the importance of transparency in making supervisory processes effective and strengthening market discipline.