10 Feb 2006, Operational Risk & Regulation
By contrast, the five ethical variables - corruption, favouritism, judicial independence, prevalence of insider trading and effective regulation - all had dramatic effects. Transparency International measures ethical qualities on a seven-point scale, and a single point of increase on any of the five dramatically reduces the chance of a bank crisis - up to 89%, in the case of judicial independence.
The study's author, Saadia Zahidi, a researcher at the Institute of International Studies in Geneva, said: "While crises may erupt in a relatively short period of time, they are usually the result of long-term fundamental problems in a country’s financial institutions."
She added that the results would boost calls for global financial standards, such as those produced by the Bank for International Settlements, and better transparency on a national level.RiskNews
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