Economic and Commercial Law Researches

Legal Requirements of the Capital Adequacy Ratio and the Central Bank Supervision in Protecting Depositors' Rights and Strengthening Public Confidence

Document Type : Original Article

Authors

sedigheh gharloghi 1
Ebrahim Abdipour fard 2
Alireza Dabirnia 3
Sayyed Hadi Arabi 4

1 Ph.D., Faculty of Law, University of Qom, Qom, Iran. Corresponding Author Email: gharloghi.sedighe@gmail.com

2 Associate Professor, Faculty of Law, University of Qom, Qom, Iran.

3 Associate Professor, Department of Public Law, Faculty of Law,, University of Qom

4 Associate Professor, Faculty of Economics and Administrative Sciences, University of Qom, Qom, Iran.

https://doi.org/10.48308/eclr.2025.238776.1139
Abstract
The capital adequacy ratio is a key indicator used to assess a financial institution’s ability to meet its obligations and absorb potential losses. This ratio serves as a proxy for the financial stability and soundness of financial institutions, ensuring that they maintain sufficient resources to meet their obligations, protect depositors’ interests, and sustain public confidence. Using a descriptive-analytical methodology and focusing on legal and regulatory frameworks, this study examines how capital adequacy ratio requirements are formulated within the Iranian legal system and evaluates the performance of supervisory authorities in enforcing these requirements. A review of domestic legislative and regulatory instruments reveals a limited degree of alignment with international standards regarding the determination of the capital adequacy ratio. The findings suggest that compliance with statutory requirements, along with rigorous and continuous oversight by the Central Bank, can strengthen public trust in the banking system and enhance banks’ resilience against economic volatility and financial crises

Keywords

Capital Adequacy Ratio
Central Bank Supervision
Depositors'؛ Rights
International Standards
Public Trust

  1.  

    Books

    1. Abdipour Fard, Ebrahim, Commercial Law (Commercial Companies Law) , 1st edition, Volume 2, Tehran: Majd Publications, ۲۰۲۳. (in Persian)
    2. Akbik, Adina, The European Parliament as an accountability forum: Overseeing the Economic and Monetary union, Cambridge University Press, 2022.
    3. Bessis, Joel, Risk management in banking, John Wiley & Sons, 2011.
    4. Hunger, J. David, Thomas L. Willen, Fundamentals of Strategic Management, Translators: Mohammad Ali Arabi, Davud Izadi, 1st edition, Tehran: Cultural Research Office, 2005. (in Persian)
    5. Rasek, Mohammad, Checks and Balances in the Constitutional Law System, 1st edition, Tehran: Drak Publications, 2009. (in Persian)
    6. Samee, Nasser and Behrouz Ghasemi, Pathology of Control and Supervision in the Iranian Market, 1st edition, Tehran: Kalameh Publishing House, 2006 .(in Persian)
    7. Zamani Farahani, Mojtaba, Money, Currency and Banking, 15th edition, Tehran: Termeh Publications, 2010. (in Persian)

    Articles

    1. AlZoubi, Marwan, "Bank capital adequacy: The impact of fundamental and regulatory factors in a developing country", Journal of Applied Business Research, Vol. 37, No. 6, 2021, pp. 1-22.
    2. An Introduction to Capital Adequacy in IDA’s Hybrid Financial Model, April 2024| Development Finance World Bank, Available at: https://www.worldbank.org/ext/en/home.
    3. Anarfo, Ebenezer Bugri, and Joshua Yindenaba Abor, "Financial regulation and financial inclusion in Sub-Saharan Africa: does financial stability play a moderating role? ," Research in International Business and Finance, Vol.51, 2020, pp. 1-17.
    4. Anonymous, An overview of international standards Basel I, II, III and risk management, available at: file:///C:/Users/Gharloghi/Downloads/1441529009179cdgi2m8tiqog023b4iqrikdfv1%20 (3) pdf/ (in Persian)
    5. Bahrami Zenouz, Prima, Azadeh Mehrabian, Roya Seifipour, Narsis Aminrashti, "Investigation of Factors Affecting Capital Adequacy in the Banking System (Case Study of Iran and Malaysia)", Quarterly Journal of Financial Economics, Vol. 15, Issue 54, 2019, pp. 159-137 (in Persian)
    6. Begenau, Juliane, and Tim Landvoigt, "Financial regulation in a quantitative model of the modern banking system", The Review of Economic Studies, Vol.89, No. 4, 2022, PP. 1-45.
    7. Fraccaroli, Nicolò, Rhiannon Sowerbutts, and Andrew Whitworth, "Does regulatory and supervisory independence affect financial stability?", 2020, pp.1-24.
    8. Gale, Douglas, “Capital Regulation and Risk Sharing”, International Journal of Central Banking, 6, No. 4, 2010, pp. 187–204.
    9. Herrera, H., Ordonez, G., and Trebesch, C, “Political Booms, Financial Crises”, Journal of Political Economy, forthcoming, 2020, pp. 507-543.
    10. Laleh Gani, Ismail, “The Effect of Government Mandatory Facilities on Banks’ Overdrafts from the Central Bank”, Studies in Banking Management and Islamic Banking, Vol, 8, No. 21, 2018, pp. 12-14. (in Persian)
    11. Phan, Dinh Hoang Bach, Vuong Thao Tran, and Bernard Njindan Iyke, "Geopolitical risk and bank stability", Finance Research Letters, Vol. 46 , 2022, P. 102453. pp. 1-22.
    12. Plato-Shinar, Ruth, "Banking regulation in Israel: balancing systemic stability and consumer protection", In Regulation in Israel: Values, Effectiveness, Methods, Cham: Springer International Publishing, 2020, pp. 27-48.
    13. Sang, Nguyen Minh, "Capital adequacy ratio and a bank’s financial stability in Vietnam", Banks and Bank Systems, Vol. 16, No. 4, 2021, pp.61-71.
    14. Shaygani, Bita, Mosab Abdollahi Arani, “Stability Study in the Banking Sector of the Iranian Economy”, Bi-Quarterly Journal of Economic Research, Vol. 8, No. 16, 2011, pp. 147-16. (in Persian)
    15. Tadesse Bogale, Addisaiem, ” Effect of bank specific and macroeconomic determinants on capital adequacy ratio a study on Ethiopian private commercial banks”, Journal of Business and Economic Management, Vol. 9, No. 2, 2021, pp. 47-57.
    16. Tohidinia, Abolghasem, and Hamid Nasiri, “The Necessity or Non-Necessity of Adherence to Capital Adequacy Requirements in Interest-Free Banking: Competing Views”, Development Strategy Quarterly, No. 55, 2018, pp. 217-187. (in Persian)
    17. Valighadam Zanjani, Mohammad and Mahnaz Bahrami, “Capital Adequacy in Iranian Financial Banks, Humanities Papers Collection”, Third Issue, 2001, pp. 215-189. (in Persian)
    18. Weber, Christoph S,”The effect of central bank transparency on exchange rate volatility”, Journal of international money and finance, Vol. 95, 2019, pp.165-181.
    19. Legislative Instruments
    20. Capital adequacy regulations for state-owned and non-state banks, approved in 2003 (in Persian)
    21. Civil Service Management Law, approved in 1987. (in Persian)
    22. General policies of the Seventh Five-Year Plan announced in 2023. (in Persian)
    23. Guidelines for calculating regulatory capital and capital adequacy of credit institutions, approved in 2017.  (in Persian)
    24. Law of the Central Bank of the Islamic Republic of Iran, approved in 2023. (in Persian)
    25. Law on the Implementation of General Policies of Principle 44 of the Constitution, approved in 2007. (in Persian)
    26. Law on the Seventh Five-Year Development Plan of the Islamic Republic of Iran (1403-1407) approved in 2023. (in Persian)
    27. Law permitting the establishment of non-governmental banks, approved in 1999. (in Persian)
    28. Monetary and Banking Law approved in 1972. (in Persian)
    29. Public Accounting Law, approved in 1987. (in Persian)
    30. Regulations on the Basic Capital of Banks and Credit Institutions, 2003. (in Persian)
    31. Regulations on the establishment and management of banks and non-governmental financial and credit institutions, subject to Note 2, Article 5 of the Law on the Implementation of General Policies, Principle 44 of the Constitution, approved in 2009. (in Persian)
    32. Regulations on the establishment and management of non-governmental credit institutions, approved by the Council of Ministers on 2014. (in Persian)
    33. Online Resources
    34. https://www.bis.org/about/index.htm?m=2. (Last visited 2025/04/12).
    35. https://www.cbi.ir/showitem/30838.aspx. (Last visited 2025/05/21).
    36. Australia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for E˙ective Banking Supervision. IMF Financial Sector Assessment Program 19/53, International Monetary Fund (2019). Available at:

    https://www.imf.org (last visited 2025/06/04).

    1. Germany: Financial sector assessment program - fnancial system stability assessment. IMF Financial Sector Assessment Program 16/189, International Monetary Fund (2016). Available at:

    https://www.imf.org (last visited 2025/06/04).

    1. Turkey: Financial sector assessment program-detailed assessment of observancebasel core principles for e˙ective banking supervision. IMF Financial Sector Assessment Program 17/46, International Monetary Fund, 2017, Available at: https://www.imf.org (last visited

    Books

    1. Abdipour Fard, Ebrahim, Commercial Law (Commercial Companies Law) , 1st edition, Volume 2, Tehran: Majd Publications, ۲۰۲۳. (in Persian)
    2. Akbik, Adina, The European Parliament as an accountability forum: Overseeing the Economic and Monetary union, Cambridge University Press, 2022.
    3. Bessis, Joel, Risk management in banking, John Wiley & Sons, 2011.
    4. Hunger, J. David, Thomas L. Willen, Fundamentals of Strategic Management, Translators: Mohammad Ali Arabi, Davud Izadi, 1st edition, Tehran: Cultural Research Office, 2005. (in Persian)
    5. Rasek, Mohammad, Checks and Balances in the Constitutional Law System, 1st edition, Tehran: Drak Publications, 2009. (in Persian)
    6. Samee, Nasser and Behrouz Ghasemi, Pathology of Control and Supervision in the Iranian Market, 1st edition, Tehran: Kalameh Publishing House, 2006 .(in Persian)
    7. Zamani Farahani, Mojtaba, Money, Currency and Banking, 15th edition, Tehran: Termeh Publications, 2010. (in Persian)

    Articles

    1. AlZoubi, Marwan, "Bank capital adequacy: The impact of fundamental and regulatory factors in a developing country", Journal of Applied Business Research, Vol. 37, No. 6, 2021, pp. 1-22.
    2. An Introduction to Capital Adequacy in IDA’s Hybrid Financial Model, April 2024| Development Finance World Bank, Available at: https://www.worldbank.org/ext/en/home.
    3. Anarfo, Ebenezer Bugri, and Joshua Yindenaba Abor, "Financial regulation and financial inclusion in Sub-Saharan Africa: does financial stability play a moderating role? ," Research in International Business and Finance, Vol.51, 2020, pp. 1-17.
    4. Anonymous, An overview of international standards Basel I, II, III and risk management, available at: file:///C:/Users/Gharloghi/Downloads/1441529009179cdgi2m8tiqog023b4iqrikdfv1%20 (3) pdf/ (in Persian)
    5. Bahrami Zenouz, Prima, Azadeh Mehrabian, Roya Seifipour, Narsis Aminrashti, "Investigation of Factors Affecting Capital Adequacy in the Banking System (Case Study of Iran and Malaysia)", Quarterly Journal of Financial Economics, Vol. 15, Issue 54, 2019, pp. 159-137 (in Persian)
    6. Begenau, Juliane, and Tim Landvoigt, "Financial regulation in a quantitative model of the modern banking system", The Review of Economic Studies, Vol.89, No. 4, 2022, PP. 1-45.
    7. Fraccaroli, Nicolò, Rhiannon Sowerbutts, and Andrew Whitworth, "Does regulatory and supervisory independence affect financial stability?", 2020, pp.1-24.
    8. Gale, Douglas, “Capital Regulation and Risk Sharing”, International Journal of Central Banking, 6, No. 4, 2010, pp. 187–204.
    9. Herrera, H., Ordonez, G., and Trebesch, C, “Political Booms, Financial Crises”, Journal of Political Economy, forthcoming, 2020, pp. 507-543.
    10. Laleh Gani, Ismail, “The Effect of Government Mandatory Facilities on Banks’ Overdrafts from the Central Bank”, Studies in Banking Management and Islamic Banking, Vol, 8, No. 21, 2018, pp. 12-14. (in Persian)
    11. Phan, Dinh Hoang Bach, Vuong Thao Tran, and Bernard Njindan Iyke, "Geopolitical risk and bank stability", Finance Research Letters, Vol. 46 , 2022, P. 102453. pp. 1-22.
    12. Plato-Shinar, Ruth, "Banking regulation in Israel: balancing systemic stability and consumer protection", In Regulation in Israel: Values, Effectiveness, Methods, Cham: Springer International Publishing, 2020, pp. 27-48.
    13. Sang, Nguyen Minh, "Capital adequacy ratio and a bank’s financial stability in Vietnam", Banks and Bank Systems, Vol. 16, No. 4, 2021, pp.61-71.
    14. Shaygani, Bita, Mosab Abdollahi Arani, “Stability Study in the Banking Sector of the Iranian Economy”, Bi-Quarterly Journal of Economic Research, Vol. 8, No. 16, 2011, pp. 147-16. (in Persian)
    15. Tadesse Bogale, Addisaiem, ” Effect of bank specific and macroeconomic determinants on capital adequacy ratio a study on Ethiopian private commercial banks”, Journal of Business and Economic Management, Vol. 9, No. 2, 2021, pp. 47-57.
    16. Tohidinia, Abolghasem, and Hamid Nasiri, “The Necessity or Non-Necessity of Adherence to Capital Adequacy Requirements in Interest-Free Banking: Competing Views”, Development Strategy Quarterly, No. 55, 2018, pp. 217-187. (in Persian)
    17. Valighadam Zanjani, Mohammad and Mahnaz Bahrami, “Capital Adequacy in Iranian Financial Banks, Humanities Papers Collection”, Third Issue, 2001, pp. 215-189. (in Persian)
    18. Weber, Christoph S,”The effect of central bank transparency on exchange rate volatility”, Journal of international money and finance, Vol. 95, 2019, pp.165-181.
    19. Legislative Instruments
    20. Capital adequacy regulations for state-owned and non-state banks, approved in 2003 (in Persian)
    21. Civil Service Management Law, approved in 1987. (in Persian)
    22. General policies of the Seventh Five-Year Plan announced in 2023. (in Persian)
    23. Guidelines for calculating regulatory capital and capital adequacy of credit institutions, approved in 2017.  (in Persian)
    24. Law of the Central Bank of the Islamic Republic of Iran, approved in 2023. (in Persian)
    25. Law on the Implementation of General Policies of Principle 44 of the Constitution, approved in 2007. (in Persian)
    26. Law on the Seventh Five-Year Development Plan of the Islamic Republic of Iran (1403-1407) approved in 2023. (in Persian)
    27. Law permitting the establishment of non-governmental banks, approved in 1999. (in Persian)
    28. Monetary and Banking Law approved in 1972. (in Persian)
    29. Public Accounting Law, approved in 1987. (in Persian)
    30. Regulations on the Basic Capital of Banks and Credit Institutions, 2003. (in Persian)
    31. Regulations on the establishment and management of banks and non-governmental financial and credit institutions, subject to Note 2, Article 5 of the Law on the Implementation of General Policies, Principle 44 of the Constitution, approved in 2009. (in Persian)
    32. Regulations on the establishment and management of non-governmental credit institutions, approved by the Council of Ministers on 2014. (in Persian)
    33. Online Resources
    34. https://www.bis.org/about/index.htm?m=2. (Last visited 2025/04/12).
    35. https://www.cbi.ir/showitem/30838.aspx. (Last visited 2025/05/21).
    36. Australia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for E˙ective Banking Supervision. IMF Financial Sector Assessment Program 19/53, International Monetary Fund (2019). Available at:

    https://www.imf.org (last visited 2025/06/04).

    1. Germany: Financial sector assessment program - fnancial system stability assessment. IMF Financial Sector Assessment Program 16/189, International Monetary Fund (2016). Available at:

    https://www.imf.org (last visited 2025/06/04).

    1. Turkey: Financial sector assessment program-detailed assessment of observancebasel core principles for e˙ective banking supervision. IMF Financial Sector Assessment Program 17/46, International Monetary Fund, 2017, Available at: https://www.imf.org (last visited

    Books

    1. Abdipour Fard, Ebrahim, Commercial Law (Commercial Companies Law) , 1st edition, Volume 2, Tehran: Majd Publications, ۲۰۲۳. (in Persian)
    2. Akbik, Adina, The European Parliament as an accountability forum: Overseeing the Economic and Monetary union, Cambridge University Press, 2022.
    3. Bessis, Joel, Risk management in banking, John Wiley & Sons, 2011.
    4. Hunger, J. David, Thomas L. Willen, Fundamentals of Strategic Management, Translators: Mohammad Ali Arabi, Davud Izadi, 1st edition, Tehran: Cultural Research Office, 2005. (in Persian)
    5. Rasek, Mohammad, Checks and Balances in the Constitutional Law System, 1st edition, Tehran: Drak Publications, 2009. (in Persian)
    6. Samee, Nasser and Behrouz Ghasemi, Pathology of Control and Supervision in the Iranian Market, 1st edition, Tehran: Kalameh Publishing House, 2006 .(in Persian)
    7. Zamani Farahani, Mojtaba, Money, Currency and Banking, 15th edition, Tehran: Termeh Publications, 2010. (in Persian)

    Articles

    1. AlZoubi, Marwan, "Bank capital adequacy: The impact of fundamental and regulatory factors in a developing country", Journal of Applied Business Research, Vol. 37, No. 6, 2021, pp. 1-22.
    2. An Introduction to Capital Adequacy in IDA’s Hybrid Financial Model, April 2024| Development Finance World Bank, Available at: https://www.worldbank.org/ext/en/home.
    3. Anarfo, Ebenezer Bugri, and Joshua Yindenaba Abor, "Financial regulation and financial inclusion in Sub-Saharan Africa: does financial stability play a moderating role? ," Research in International Business and Finance, Vol.51, 2020, pp. 1-17.
    4. Anonymous, An overview of international standards Basel I, II, III and risk management, available at: file:///C:/Users/Gharloghi/Downloads/1441529009179cdgi2m8tiqog023b4iqrikdfv1%20 (3) pdf/ (in Persian)
    5. Bahrami Zenouz, Prima, Azadeh Mehrabian, Roya Seifipour, Narsis Aminrashti, "Investigation of Factors Affecting Capital Adequacy in the Banking System (Case Study of Iran and Malaysia)", Quarterly Journal of Financial Economics, Vol. 15, Issue 54, 2019, pp. 159-137 (in Persian)
    6. Begenau, Juliane, and Tim Landvoigt, "Financial regulation in a quantitative model of the modern banking system", The Review of Economic Studies, Vol.89, No. 4, 2022, PP. 1-45.
    7. Fraccaroli, Nicolò, Rhiannon Sowerbutts, and Andrew Whitworth, "Does regulatory and supervisory independence affect financial stability?", 2020, pp.1-24.
    8. Gale, Douglas, “Capital Regulation and Risk Sharing”, International Journal of Central Banking, 6, No. 4, 2010, pp. 187–204.
    9. Herrera, H., Ordonez, G., and Trebesch, C, “Political Booms, Financial Crises”, Journal of Political Economy, forthcoming, 2020, pp. 507-543.
    10. Laleh Gani, Ismail, “The Effect of Government Mandatory Facilities on Banks’ Overdrafts from the Central Bank”, Studies in Banking Management and Islamic Banking, Vol, 8, No. 21, 2018, pp. 12-14. (in Persian)
    11. Phan, Dinh Hoang Bach, Vuong Thao Tran, and Bernard Njindan Iyke, "Geopolitical risk and bank stability", Finance Research Letters, Vol. 46 , 2022, P. 102453. pp. 1-22.
    12. Plato-Shinar, Ruth, "Banking regulation in Israel: balancing systemic stability and consumer protection", In Regulation in Israel: Values, Effectiveness, Methods, Cham: Springer International Publishing, 2020, pp. 27-48.
    13. Sang, Nguyen Minh, "Capital adequacy ratio and a bank’s financial stability in Vietnam", Banks and Bank Systems, Vol. 16, No. 4, 2021, pp.61-71.
    14. Shaygani, Bita, Mosab Abdollahi Arani, “Stability Study in the Banking Sector of the Iranian Economy”, Bi-Quarterly Journal of Economic Research, Vol. 8, No. 16, 2011, pp. 147-16. (in Persian)
    15. Tadesse Bogale, Addisaiem, ” Effect of bank specific and macroeconomic determinants on capital adequacy ratio a study on Ethiopian private commercial banks”, Journal of Business and Economic Management, Vol. 9, No. 2, 2021, pp. 47-57.
    16. Tohidinia, Abolghasem, and Hamid Nasiri, “The Necessity or Non-Necessity of Adherence to Capital Adequacy Requirements in Interest-Free Banking: Competing Views”, Development Strategy Quarterly, No. 55, 2018, pp. 217-187. (in Persian)
    17. Valighadam Zanjani, Mohammad and Mahnaz Bahrami, “Capital Adequacy in Iranian Financial Banks, Humanities Papers Collection”, Third Issue, 2001, pp. 215-189. (in Persian)
    18. Weber, Christoph S,”The effect of central bank transparency on exchange rate volatility”, Journal of international money and finance, Vol. 95, 2019, pp.165-181.
    19. Legislative Instruments
    20. Capital adequacy regulations for state-owned and non-state banks, approved in 2003 (in Persian)
    21. Civil Service Management Law, approved in 1987. (in Persian)
    22. General policies of the Seventh Five-Year Plan announced in 2023. (in Persian)
    23. Guidelines for calculating regulatory capital and capital adequacy of credit institutions, approved in 2017.  (in Persian)
    24. Law of the Central Bank of the Islamic Republic of Iran, approved in 2023. (in Persian)
    25. Law on the Implementation of General Policies of Principle 44 of the Constitution, approved in 2007. (in Persian)
    26. Law on the Seventh Five-Year Development Plan of the Islamic Republic of Iran (1403-1407) approved in 2023. (in Persian)
    27. Law permitting the establishment of non-governmental banks, approved in 1999. (in Persian)
    28. Monetary and Banking Law approved in 1972. (in Persian)
    29. Public Accounting Law, approved in 1987. (in Persian)
    30. Regulations on the Basic Capital of Banks and Credit Institutions, 2003. (in Persian)
    31. Regulations on the establishment and management of banks and non-governmental financial and credit institutions, subject to Note 2, Article 5 of the Law on the Implementation of General Policies, Principle 44 of the Constitution, approved in 2009. (in Persian)
    32. Regulations on the establishment and management of non-governmental credit institutions, approved by the Council of Ministers on 2014. (in Persian)
    33. Online Resources
    34. https://www.bis.org/about/index.htm?m=2. (Last visited 2025/04/12).
    35. https://www.cbi.ir/showitem/30838.aspx. (Last visited 2025/05/21).
    36. Australia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for E˙ective Banking Supervision. IMF Financial Sector Assessment Program 19/53, International Monetary Fund (2019). Available at:

    https://www.imf.org (last visited 2025/06/04).

    1. Germany: Financial sector assessment program - fnancial system stability assessment. IMF Financial Sector Assessment Program 16/189, International Monetary Fund (2016). Available at:

    https://www.imf.org (last visited 2025/06/04).

    1. Turkey: Financial sector assessment program-detailed assessment of observancebasel core principles for e˙ective banking supervision. IMF Financial Sector Assessment Program 17/46, International Monetary Fund, 2017, Available at: https://www.imf.org (last visited

Peer Review Process

Guide for Authors

Submit Manuscript

Reviewers

Contact Us

Licensing Policy

Open Access Statement

Copyright Policy

Plagiarism policy

Self-archiving policies for authors