Category Financial Sector Assessment

Range of Fina ncial Supervisory Structures

A wide variety of institutional structures for financial supervision exists around the world. There is a spectrum of alternatives rather than an “either-or” choice, and there is con­siderable variety within the spectrum and even within the same basic model. Although no universal pattern exists, there is a general trend toward (a) reducing the number of separate agencies, (b) integrating prudential supervisory arrangements, (c) reducing the role of the central bank in prudential oversight of financial institutions, (d) placing more emphasis on the role of the central bank in systemic stability, and, if a unified agency is created, (e) making this an agency other than the central bank.

National differences reflect a multitude of factors: historic evolution, structure of the financial sy...

Read More

Regulatory Oversight

The methods of pension regulation and supervision differ across countries, reflecting individual national standards and structures. For example, some OECD countries have

established independent, separate pension fund supervisory agencies. Elsewhere, pension funds can fall under the insurance regulator, a universal financial services supervisor, or the ministry of finance. Nevertheless, despite country differences, there are broadly two models of supervision: proactive and reactive.

• Proactive supervision involves detailed specification of the activities of pension fund managers, as well as tight supervision and audit to enforce the rules.

• Reactive supervision allows for a greater degree of self-regulation within the sector.

Supervision can cover institutional controls (authorizatio...

Read More

Commercial Databases Providing Bank-Level Data

Bankscope provides financial data (financial statements and bank performance indica­tors) for more than 10,000 individual banks. Bank-level data can be aggregated automati­cally, but the prudential indicators are sometimes available only for a limited number of banks, thereby creating distortions in the aggregate indicators. Data can be filtered by banking groups (e. g., commercial banks, savings banks, cooperative banks, foreign banks, state-owned banks), although the ownership information is sometimes incomplete. The data coverage is as follows:

• Years covered: 1995 onward, annual frequency

• Countries covered: covers most of the countries in the world, but level of banking system coverage varies by country

Banker’s Almanac provides a comprehensive list of all the financial instit...

Read More

General Issues in Bank Insolvency Proceedings

G.3.1 Choice of Bank Insolvency Regime

The choice of legal arrangement should be conducive to achieving financial stability while also preserving the value of bank assets.4 A primary choice must be made between a system based on the type of proceedings generally applicable to insolvent corporations, with any appropriate modifications,5 and a special regime that is designed exclusively for banks.6 A special regime for bank insolvency—or adequate modifications to the corporate insolvency regime—is needed because of (a) the potential systemic effects of bank fail­ures, (b) the objective of safeguarding financial stability in the course of bank insolvency, and (c) the special role of banking authorities in bank insolvency.

The choice between the two systems has implications for the instit...

Read More

Interpretation and Publication

Experience in conducting stress tests suggests they are a useful tool for identifying the latent risk exposures and the likely significance of losses in a systematic and intuitive manner. Stress tests can be particularly useful when they are conducted on a regular basis, thereby providing information about changes in the risk profile of the system over time. Although stress test results are useful to evaluate effects of large movements (tail events) in key variables, care should be taken not to portray them as providing a precise measure of the magnitude of losses. Stress tests can indicate how much could be lost but not how much is likely to be lost.

Interpretation of stress tests needs to take into account their limitations...

Read More

Publicly Assisted Bank Restructuring

More recently, there has been broad international convergence on the principle that the discretionary, open-ended application of public funds to keep afloat insolvent banks and to make good their losses is unjustifiable. This practice transfers commercial losses to the taxpayer, validates bad bank management, and prevents the operation of the financial sector under conditions of market discipline and undistorted competition.

Generally, in situations of individual bank failure, no public funds should be used in the bank’s restructuring or liquidation, except in relation to payments under state-guar­anteed deposit insurance schemes...

Read More