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Basel overhauls bank supervision code

Tuesday 20 December 2011 - by Andrew Hickley & Will Henley

 Regulatory authorities will be obliged to exchange information on the activities of multinational banks under a revision to the Basel Committee on Banking Supervision's "core principles for effective bank supervision".

Updating a set of guidelines issued in 2006, the committee says the draft changes, released by the committee on Tuesday, build on the lessons of the financial crisis by strengthening the supervision of banks.

The principles have been re-ordered to highlight the difference between responsibilities for supervisors and individual banks, with the revision increasing the number of core principles from 25 to 29.

Under the changes, home and host authorities of cross-border banks are instructed to share information and cooperate to ensure a group and its subsidiaries are effectively supervised, especially during a financial crisis.

The revision also states that supervisors need to be able to cooperate with other authorities to achieve an orderly resolution of a bank which could be deemed to have a systemic impact on the financial system.

The document expands upon principles relating to independence, powers and cooperation, while adding guidelines for corporate governance, disclosure and transparency.


For instance, supervisors must be able to increase prudential requirements for banks and banking groups based on both their risk profile and their systemic importance, the draft code adds.

The code affirms that supervisors must ensure that banks have a comprehensive risk management process to identify, measure and evaluate all material risks faced "on a timely basis".

It also introduces the principle that when more than one authority supervises the banking system, a credible and publicly available framework must be in place to avoid any regulatory or supervisory gaps.

Teo Swee Lian, co-chair of the core principles group and deputy managing director of the Monetary Authority of Singapore, said: "With the advent of various policy measures for addressing both bank-specific and broader systemic risks, the key challenge in this revision of the core principles has been to uphold their relevance for different jurisdictions and banking systems.

"As highlighted in the paper, a proportionate approach achieves this through advocating risk-based supervision and supervisory expectations that are commensurate with a bank's risk profile and systemic importance."

Comments on the revised principles should be submitted by 20 March 2012.


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