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Introduction
Turkey has faced many financial and banking crises during the last two decades and, as a result national economy, particularly the banking system got seriously damaged. However, it will not be wrong to argue that crises may create some opportunities for policy makers to establish a safe, sound and strong financial system. Turkish policy makers also recognized this chance, and issued a new Banking Act No: 5411 in 2005 to regulate and supervise Turkish banking system[1] . The Banking Act was in fact designed to work for the purpose of finding solutions to problems that arose during the banking crises. Thus, by imposing regulatory requirements and supervisory practices, it aims to create a strong and safe banking system, which is vital for national economy. The aim of this article is to describe and discuss the enforcement of prudential regulation imposed by the Banking Act. In this context, general information regarding the banking supervision and enforcement of prudential regulation will first be given and then the enforcement of prudential standards will further be discussed within the Turkish Law framework.
1 Banking supervision and enforcement of prudential regulation
1.1 General overview
It is widely recognized that banks are a special kind among financial institutions, with their distinctive functions in the economic system. Three characteristics of those functions justify the need for special regulation and supervision solely designed for the banking system. First, banks hold long-term assets such as loans against short term, highly liquid liabilities such as deposits. Differences in the maturities of assets and liabilities of banks make them vulnerable to a loss of confidence in the market place. Second, banks provide special financial services such as credit extensions, deposit taking and payment services essential to the well functioning of an economy. Third, banks are important financial institutions that connect the banking system and conduct of monetary policy ([1] Hüpkes, 2000; [2] Goodhart et al. , 1998).
These special features attract regulators to establish prudential standards for banks in order to ensure that they play their role in the economic system in a manner that is strong, safe and prudent. Thus, the need for prudential regulations is strongly accepted among the scholars ([3] Llewellyn, 1999). In addition, both national and international authorities also agree on...