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This paper examines the risk-relevance of the Basel capital regulations in Taiwan. We investigate (1) whether the regulatory information can explain bank risk, (2) whether the new 1998 version provides incremental information to assess bank risk, given the old 1992 version, and (3) which regulatory version is more useful in assessing bank risk. This paper employs an option pricing methodology to calculate implied asset risk as a proxy for total risk. We find that the Basel capital ratio and its components help explain risk and that the components under the new version have incremental explanatory power over those under the old. Additionally, the new version has greater information regarding risk than the old. Finally, two risk dimensions categorized by supervisors, credit risk and market risk have different explanatory power. Regulatory information about credit risk has explanatory power, but market risk does not. It implies that the Basel accord, contrary to expectation, does not fully capture all risk. Overall, this study contributes to capturing the risk-relevance of the ongoing evolution of the Basel capital regulations in an emerging market economy.

Taking into account only financial factors does not provide complete information on performance. This paper takes into consideration of both financial and non-financial performances when evaluating 35 sampled publicly traded commercial banks in Taiwan. The performance of banks is measured using an indexing method consisting of financial and non-financial measures. Banks are classified into two categories according either to the year founded, or to the type of major stockholders of a bank when founded. The results show that privatized government-owned/old banks are larger than private/new banks, respectively. Moreover, privatized government-owned banks have significantly higher financial performance index than private banks but both types of banks are not significantly different from each other in non-financial performance index. New and old banks are not significantly different from each other in both financial and non-financial performance indexes. With relatively large scale, higher profitability and better management, banks will perform relatively better among competitors in the following year. Furthermore, non-financial factors are important predictors of future financial and total performance indexes, though individual factor may not be consistently significant. More branch offices, better capital structure and solvency, and higher rates of growth in deposits and loans all result in more profits, and lead to higher customer satisfaction and more efficient management. Providing better technology to customers is an efficient way in promoting customer services, which in turn produces more profits and results in efficient management. CEOs, on average, have plans for better management and more profits. Among the factors that have direct and positive impacts on profitability, increasing the efficiency of management is the most efficient way. On the contrary, adding more branch offices contributes the least profits. Therefore, to increase bank profits, CEOs should aim to improve bank management, capital structure and solvency, rather than to add more branch offices.