Category Financial Sector Assessment

Importance of Institutional Structure

The institutional structure of supervisory agencies is not simply an administrative matter; it is important to meet the objectives of financial supervision for several reasons. The
objectives of financial supervision are to promote efficiency and competition,2 to main­tain market confidence, to protect depositors or consumers (as appropriate), and to foster systemic stability. Supervisory capacity and the supervisory process itself are the critical elements in attaining those goals...

Read More

The Regulation of Investment Regimes7

The means by which investment regimes, and thus asset allocation, related to public and private pensions are regulated will vary across and within countries (e. g., each individual U. S. state has its own investment regime). Regulatory (and tax) constraints on invest­ment behavior and national funding rules significantly influence pension fund strategies. For example, in the case of Chile,8 the pension sector is regulated by a highly complex investment regime, with limits by instruments, instrument characteristics, issuers, and issuer types. By comparison, the investment regime for pension funds in OECD countries is considered relatively much simpler.

OECD countries are typically classified in two groups, adhering to either the prudent man rule or the quantitative restrictions regime...

Read More

Countries covered: primarily countries with active capital markets Ratings Agencies

Moody’s Investors Services publishes financial statements and selected FSIs for the rated banks in each country in a banking statistical supplement. Each supplement contains 5 years of annual bank-level data. For some countries, banking system aggregates are also available. Moody’s also rates the financial strength of each bank, using bank performance and other country-specific indicators. The data coverage is as follows:

• Years covered: each statistical supplement covers 5 years of annual data

• Countries covered: rated banks in developed and emerging market countries, annual frequency; data timeliness varies depending on when the supplement was published and has up to 1 year of lag

Fitch Research publishes selected financial information for the top five to six banks in developed...

Read More

Administrative or Court-Based Special Bank Insolvency Regime

When a country seeks to address cases of bank insolvency through the corporate insol­vency framework (with appropriate modifications), insolvency proceedings are invariably conducted in the courts. By contrast, the adoption of a special bank insolvency regime

separate from corporate insolvency law offers two main possibilities: first, the insolvency proceedings may be initiated and conducted by a banking authority, or, second, the pro­ceedings may remain under the jurisdiction of the insolvency courts even if the banking supervisory authorities retain a number of key functions, which are, in most cases, related to the commencement and the supervision of certain key aspects of the proceedings.

In some jurisdictions, there would be significant opposition to the introduction of purely admi...

Read More

Exchange Rate Risk

Exchange rate risk is the risk that exchange rate changes can affect the value of an institu­tion’s assets and liabilities, as well as its off-balance-sheet items. Exchange rate risk can be direct (a financial institution takes or holds a position in foreign currency) or indirect (a foreign exchange position taken by one of the financial institution’s borrowers or by coun­terparties may affect their creditworthiness). The most commonly used measure of foreign exchange exposure is an institution’s net open foreign exchange position. Under the Basel methodology, a bank’s net open position is calculated as the sum of the following items:8 the net spot position (i. e...

Read More

Main Restructuring Techniques and Basic Applicable Principles

The guidelines include the appropriate treatment of the legal issues involved in different bank restructuring techniques, such as mergers or acquisitions, good-bank and bad-bank separation, bridge banks, and purchase-and-assumptions transactions. Key legal issues include the following:

• Need for supervisory approval of the restructuring

• Mechanisms to protect property rights and dilute shareholders’ rights

• Rules for negotiations with prospective investors

• Rules affecting the transfer of assets and liabilities

• Rules on the use of a bank’s proprietary information

The key principles to govern the legal and regulatory framework for bank restructuring are as follows:

• The agency responsible for bank resolution should be clearly identified...

Read More