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    6jose de Luna BCP - Basel and FS

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    The document summarizes a presentation on country compliance with the Basel Core Principles for Effective Banking Supervision. It discusses the Financial Sector Assessment Program (FSAP), which jointly conducted by the IMF and World Bank to comprehensively assess countries' financial sectors. As part of FSAP, compliance with the Basel Core Principles is assessed, with gradings of compliant, largely compliant, materially non-compliant, and non-compliant. The document finds that while developing countries generally comply with legal frameworks and licensing criteria, they are weak in areas like consolidated supervision, risk management, anti-money laundering, and remedial measures for weak banks. Overall, FSAP assessments provide a basis to improve banking regulation and

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    6jose de Luna BCP - Basel and FS

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    kangipoel
    42 views24 pages
    The document summarizes a presentation on country compliance with the Basel Core Principles for Effective Banking Supervision. It discusses the Financial Sector Assessment Program (FSAP), which jointly conducted by the IMF and World Bank to comprehensively assess countries' financial sectors. As part of FSAP, compliance with the Basel Core Principles is assessed, with gradings of compliant, largely compliant, materially non-compliant, and non-compliant. The document finds that while developing countries generally comply with legal frameworks and licensing criteria, they are weak in areas like consolidated supervision, risk management, anti-money laundering, and remedial measures for weak banks. Overall, FSAP assessments provide a basis to improve banking regulation and

    Original Description:

    Business Continuity Plan in Basel II Framework

    Original Title

    6Jose de Luna BCP_Basel and FS

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    The document summarizes a presentation on country compliance with the Basel Core Principles for Effective Banking Supervision. It discusses the Financial Sector Assessment Program (FSAP), which jointly conducted by the IMF and World Bank to comprehensively assess countries' financial sectors. As part of FSAP, compliance with the Basel Core Principles is assessed, with gradings of compliant, largely compliant, materially non-compliant, and non-compliant. The document finds that while developing countries generally comply with legal frameworks and licensing criteria, they are weak in areas like consolidated supervision, risk management, anti-money laundering, and remedial measures for weak banks. Overall, FSAP assessments provide a basis to improve banking regulation and

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    42 views24 pages

    6jose de Luna BCP - Basel and FS

    Uploaded by

    kangipoel
    The document summarizes a presentation on country compliance with the Basel Core Principles for Effective Banking Supervision. It discusses the Financial Sector Assessment Program (FSAP), which jointly conducted by the IMF and World Bank to comprehensively assess countries' financial sectors. As part of FSAP, compliance with the Basel Core Principles is assessed, with gradings of compliant, largely compliant, materially non-compliant, and non-compliant. The document finds that while developing countries generally comply with legal frameworks and licensing criteria, they are weak in areas like consolidated supervision, risk management, anti-money laundering, and remedial measures for weak banks. Overall, FSAP assessments provide a basis to improve banking regulation and

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    of 24

    International Seminar on Basel II and Financial Stability

    Bali, Indonesia, September 21-23, 2006

    Country Compliance with the Basel Core


    Principles on Bank Supervision

    Jos De Luna Martnez


    The World Bank

    Contents
    1. What is the Financial Sector Assessment
    Program (FSAP)?
    2. How does the FSAP assess country compliance
    with best practices on banking supervision?
    3. Country compliance with the BCPs Strenghts
    and Weaknesses
    4. Conclusions

    What is the Financial Sector


    Assessment Program (FSAP)?

    1.

    Financial Sector Assessment Program (FSAP)


    Background information

    FSAP is a response to calls by the international


    community to facilitate early detection of financial
    sector vulnerabilities and development needs.

    FSAP started in April 1999.

    FSAP is a voluntary program

    FSAP provides a comprehensive assessment of a


    countrys financial sector.

    FSAP is jointly conducted by the IMF-World


    Bank

    FSAP - Areas of Assessment


    Rules and
    Regulations

    Financial System

    Financial
    Intermediaries

    Macroeconomic
    Environment

    Financial
    Markets

    Observance of internationally accepted standards and codes.


    How well the countrys financial institutions would handle adversity?
    Macro-prudential indicators to identify vulnerabilities.
    Obstacles preventing depth and outreach of financial systems

    Internationally Accepted Standards and Codes


    assessed under the FSAP

    Code of Good Practices on Transparency in Monetary and


    Financial Policies (MFP)

    Basel Core Principles for Effective Banking Supervision (BCP)

    Core Principles for Systemically Important Payment Systems


    (SIPS)

    IOSCOs Objectives and Principles of Securities Regulation

    Insurance Core Principles

    Anti-money laundering

    Other Internationally Accepted


    Standards and Codes

    Data Dissemination: IMFs Special Data Dissemination


    Standard/General Data Dissemination System (SDDS/GDDS).
    Fiscal Transparency: IMFs Code of Good Practices on Fiscal
    Transparency.
    Corporate Governance: OECD Principles of Corporate
    Governance.
    Accounting: International Accounting Standards.
    Auditing:
    International
    Federation
    of
    Accountants'
    International Standards on Auditing.
    Insolvency and creditor rights

    FSAPs
    Country Participation since 1999
    (as of March 30 2006)

    Initial assessments
    Updates

    101 countries
    13 countries

    How does the FSAP assess


    compliance with best practices
    on financial sector supervision?

    Assessment of
    Basel Core Principles
    Process is fully based on the use of the
    BCP methodology developed by the Basel
    Committee.
    Gradings:
    a) Compliant
    b) Largely compliant
    c) Materially non-compliant
    d) Non-compliant
    e) Not applicable

    3. Country Compliance
    with the BCPs

    Developing Country
    Compliance with the BCPs
    No. of BCPs

    30

    1
    3

    25
    8

    20
    15

    10

    10
    5

    0
    Developing Country
    Compliant

    Largely compliant

    Materially non-compliant

    Non-compliant

    Not applicable

    BCPs:
    Strengths and Weaknesses of Developing Countries
    As a group, developing countries seem to be strong in
    terms of their:
    a)
    b)

    General legal framework for bank supervision


    Objectives of the supervisory agency

    c)
    d)

    Licensing criteria for banks


    Overall framework on on-site and off-site supervision

    But, developing countries are extremely weak in the


    areas of: consolidated supervision, management of
    market and operational risks, anti-money laundering,
    among other areas.

    Developing Country Compliance with BCPs on


    Independence and Legal Protection or Bank Supervisors

    BCP 1.2 Independence

    BCP 1.5 Legal protection

    53%

    47%
    Compliant or largely compliant
    Materially non compliant or non compliant

    59%

    41%
    Compliant or largely compliant
    Materially non compliant or non compliant

    Developing Country Compliance with BCPs on Capital


    Adequacy and Banks Credit-Granting Policies
    BCP 6 Capital adequacy rules

    BCP 7 Supervisor requires


    prudent credit-granting policies

    59%

    41%
    Compliant or largely compliant
    Materially non compliant or non compliant

    61%

    39%
    Compliant or largely compliant
    Materially non compliant or non compliant

    Developing Country Compliance with BCP # 10


    on Limits to Connected Lending
    BCP 10. Limits to
    Connected
    Lending

    Widespread connected and


    government-directed lending.
    Lax management controls.

    51%

    49%

    Compliant or largely compliant


    Materially non compliant or non compliant

    Poor credit risk management


    techniques.
    Lack of consolidated supervision
    which allows banks to hide
    connected exposures.
    Inadequate rules for valuation of
    collateral.

    BCP 12 Market Risks


    Developing Country Compliance
    Compliant or
    largely compliant
    36%

    Non-compliant or
    Materially non
    compliant
    64%

    Lack of tools
    and expertise
    to monitor
    these types of
    risks
    No capital
    charges for
    market risks,
    as
    recommended
    by the Basel
    Committee

    BCP 15 Anti -Money Laundering


    Developing Country Compliance

    Compliant or
    largely compliant
    37%

    Non-compliant or
    Materially non
    compliant
    63%

    Limited understanding
    of vulnerability of
    banks to AML
    problems.
    Many countries are still
    in the process of issuing
    or preparing to enforce
    compliance with
    AML/CFT standards
    Know your customer
    requirements are not
    always sufficiently
    detailed and tested in
    practice.

    BCP 20 on Consolidated Supervision

    Weak legal basis (banks


    are not required to submit
    data on a consolidated
    basis)

    No consolidated
    accounting

    No prudential rules on a
    consolidated basis

    Poor arrangements for


    information-sharing
    among supervisors

    No authority of supervisor
    over other entities of a
    banking group or financial
    conglomerate

    Compliant or largely
    compliant
    24%

    Not applicable
    14%

    Non-compliant or
    Materially non
    compliant
    62%

    CP 22: Remedial Measures


    CP 22 requires the supervisor to have, and promptly apply,
    adequate remedial measures for banks when they do not
    meet prudential requirements, or are otherwise threatened.

    Among others, remedial measures include:


    restricting the current activities of the bank,
    withholding approval of new activities or
    acquisitions,
    restricting or suspending payments to shareholders
    restricting asset transfers,
    barring individuals from banking,
    replacing or restricting the powers of managers,
    directors, or controlling owners,
    arranging a takeover by or merger with a healthier
    institution, and imposing conservatorship.

    Developing Country Compliance with BCP # 22


    on Remedial Measures for Weak Banks
    BCP 22. Remedial
    Measures

    z Some financial institutions are

    deemed too large or complex to


    fail.
    z Due to lack of legal protection,

    51%

    49%

    authorities are afraid of taking


    corrective measures before a
    bank collapses.

    z Official administration of

    insolvent banks occurs too late.


    Compliant or largely compliant
    Materially non compliant or non compliant
    z Decisions of the regulator are

    often overturned by courts

    BCP Assessments Final Remarks

    There is a large scope for improvement of banking


    regulation and supervision across countries
    BCP assessments are a useful basis for preparing
    national strategies and action plans to improve
    bank supervision
    FSAP updates confirm that most countries are
    moving rapidly to improve bank supervision
    BCPs compliance is strongly associated to
    financial stability

    International Seminar on Basel II and Financial Stability


    Bali, Indonesia, September 21-23, 2006

    Country Compliance with the Basel Core


    Principles on Bank Supervision

    Jos De Luna Martnez


    The World Bank

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