The compliance process of the Turkish banking sector with Basel criteria and bank bankruptcies

The banking sector is the vital point of the economy due to its ability to bring together those with surplus funds and those with fund deficits, transforming small savings into large loans and finance investments. However, the sector is quite inclined to face crisis-prone risks. The Basel Committee developed Basel I, II, III, and IV criteria to increase the sector's reliability. Turkey, whose 25 banks went bankrupt during 1995-2001, had made compliance with the Basel Criteria one of its primary goals. This Master's thesis aims to reveal the relationship between the compliance process of Turkish banking sector with Basel Criteria and bank bankruptcies. The thesis consists of four sections; in the first part, specified risks among the sector and other reasons that lead to bank failures are analyzed. In the second section, Basel Criteria are introduced and described. The third part focuses on the relationship between Turkey's compliance process with the Basel Criteria and bank failures. The section examines the legal regulations to comply with Basel Criteria, the role of the BRSA and SDIF in the implementation of the criteria, and the schedule of the compliance process. Lastly, in the fourth section, the bankrupted banks are analyzed in terms of their conformance level with Basel Criteria. The thesis suggests and concludes that Turkey's decision of applying the minimum 8% capital adequacy ratio as 12% was beneficial since there were no other banks that got bankrupted after the 2001 crisis and that Turkey should stick to this approach.