《金融专业英语(第2版)》教学课件—06Supervision of Banking

金融专业Part TwoBanking Industry in China英语456CentralBank—PBC Commercial Banks Supervision of BankingContentsSupervisionof Banking6ChapterChapter 6 Supervision of BankingSection 6.1 Importance and Objectives of Banking SupervisionSection 6.2 Licensing ProcessSection 6.3 Arrangements for Ongoing Banking SupervisionSection 6.4 Dealing with Weak BanksSection 6.1 Importance and Objectives of Banking Supervision6.1.1 The Role of Banks andImportanceof Banking Supervision6.1.2 Objectives of BankingSupervision6.1.3 Preconditions for EffectiveBanking SupervisionØIt is widely recognized that banks are different from other profit-seeking business in that the economic and financial life of a country depends on banks in three important respects.ØBanks occupy a central place in the payment mechanism* for household, government and business.ØBanks in market economies play a major role in the allocation of financial resources, intermediating between depositors of surplus funds and would-be borrowers, on the basis of active judgments as to the latter’s ability to repay.ØOn the other hand, banks are also provided with important elements of official protection.ØFirstly, the key objective of supervision is to maintain stability and public confidence in the financial system.ØThe second goal of bank supervision is to ensure that banks operate in a safe and sound manner and that they hold capital and reserves* sufficient to cover the risks that may arise in their business.ØThirdly, a related goal is to protect depositors’ funds and, if any bank should fail, to minimize the losses to be absorbed by the deposit insurance fund.ØThe fourth goal of bank supervision is to foster an efficient and competitive banking system that is responsive to the public need for high quality financial services at reasonable cost.ØThe fifth and final goal of bank supervision is to ensure compliance with banking laws and regulations.6.1.3 Preconditions for Effective Banking SupervisionØSound and sustainable macroeconomic policies.ØA well developed public Infrastructure.ØEffective market discipline.ØMechanisms for providing an appropriate level of systematic protection.6.2.1 Phases of the Process6.2.2 Factors Evaluated by the Chartering Authorities6.2.3 Basel Committee’s Requirements on Bank LicensingØThe first supervisory technique is the process of licensing or chartering banks.Bank charter is usually granted by the central bank or a separate supervisory body of a country. The actual licensing processes and scrutinizing factors*considered by different chartering authorities may not be the same but usually share the following similarities.6.2.1 Phases of the ProcessTHE BANK LICENSING PROCESS GENERALLY CONSISTSOF THREE PHASES:ØAn informal pre-filing stageØThe application stageØThe organizing stageØOf these stages, the application stage is the core of the bank licensing process.IN EVALUATING A CHARTER APPLICATION, THE CHARTERING AUTHORITIES GENERALLY CONSIDERS 4 FACTORS:ØThe bank’s prospects for future earnings (i.e., whether it will be successful and profitable);ØThe qualifications of the bank’s proposed management;ØThe adequacy of the bank’s capital structure;ØThe convenience and needs of the community to be served by the bank.THE ESTABLISHMENT OF A BANK IN CHINA SHALL MEET THE FOLLOWING REQUIREMENTS.ØHaving its statute in compliance with law;ØHaving the minimum registered capital defined by the law;ØHaving directors and senior managers with expertise and professional experience commensurate with their positions; andØHaving the required business premise, safety measures and other facilities relevant with the business thereof.ØThe supervisors in examining the application for the establishment of a bank may also take into account the need for economic growth and the competition of the banking industry.6.2.3 Basel Committee’s Requirements on Bank LicensingØThe Basel Committee on Banking Supervision* (Hereinafter referred to as the Basel Committee) is a committee of banking supervisory authorities, which was established by the central bank Governors of the G10 countries in 1978.ØIt is currently made up of senior representatives of banking supervisory authorities and central banks from 13 countries. In September 1997, the Basel Committee published Core Principles for Effective Banking Supervision, which were revised and reissued in 2006 to reflect the changes that have occurred since 1997 in banking supervision and regulation in individual countries.Section 6.3 Arrangements for Ongoing Banking Supervision6.3.1 Risks in Banking6.3.2 Key Prudential Issues6.3.3 Off-site Surveillance6.3.4 On-site Examinations1Credit Risk 2Market Risk 3Liquidity Risk 4Operational Risk 5Legal Risk 6.3.1 Risks in Banking6Reputation RiskFrom a supervisory perspective, risk is the potential that events, expected or unanticipated, may have an adverse impact on the bank’s capital or earnings.6.3.2 Key Prudential IssuesØPrudential requirements cover a broad spectrum of banking activities and play an important part in assuring the effectiveness of the supervisory process. Of which, there are five key areas where the extensive prudential policies have been implemented by bank regulators of most countries, these are capital adequacy, risk concentration, asset quality, liquidity and internal controls.1. Capital Adequacy(1) Core Capital(2) Supplementary Capital.ØUndisclosed reserves ; Revaluation reserves ; General provisions ; Hybrid debt capital instruments ; Subordinated term debt(3) Deductions from Capital(4) The Risk Weights2. Risk ConcentrationØConcentration of risk and large exposures is one of the major supervisory concerns. Large exposures to a single borrower, or to a group of related borrowers are a common cause of banking problems in that they represent a credit risk concentration. Large concentrations can also arise with respect to particular industries, economic sectors, or geographical regions or by having sets of loans with other characteristics that make them vulnerable to the same economic factors.3. Asset QualityØAsset quality is the most important factor in determining a bank’s creditworthiness. Asset quality directly affects the provisioning decisions which largely determine the level of profits. In turn, the profit stream will affect capital ratios and the solvency of each bank. Asset quality and adequacy of provisions are therefore the major areas to which banking supervisors should pay particular attention. They need to be fully aware of the asset quality of individual banks and to be satisfied that adequate provisions have been maintained for problem assets.4. LiquidityØBanks may provide for liquidity in the following ways:ØHold cash or near-cash* assets;ØAppropriate cash flows from maturing assets, via assets portfolio management;ØNew deposits may be attracted and monies can be borrowed in the money markets.5. Internal ControlsØA system of effective internal controls is a critical component of bank management and a foundation for the safe and sound operation* of banking organizations. Such a system helps to ensure that goals and objectives of a banking organization will be met, that the bank will achieve long-term profitability targets, and maintain reliable financial and managerial reporting, that risks in banking activities are effectively identified, understood, measured, monitored and controlled to an acceptable level, that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and that the bank will decrease the risk of unexpected losers or damage to the bank’s reputations.ØWe will strengthen infrastructure.ØFirstly, design and issue new capital adequacy ratio statements, and constantly improve the off-site supervision statement system; Secondly, promote the quality management and evaluation of banking regulatory statistical data to further consolidate the basis of data quality; Thirdly, gradually promote the off-site supervision information system migration and the corresponding upgrade work, explore the supervision data standardization pilot; Fourthly, strengthen the contact and interaction with the system, relevant departments and the market, through special training, market analysts quarterly discussion, "monthly talk" and other forms to strengthen personnel training, improve business capacity.ØImprove off-site supervision methods.ØFirstly, the off-site supervision linkage platform is built to ensure the smooth and effective linkage of the supervision process, the horizontal linkage of departments*, the upper and lower linkage of lines, and the internal and external audit linkage with the supervision objects.ØSecondly, enrich the off-site supervision toolbox and supplement a series of basic, simple and practical off-site supervision tools;ØThirdly, strengthen the application of off-site regulatory data analysis, and give full play to the forward-looking role* of risk assessment in the disposal of high-risk institutions and the differentiated and characteristic development of commercial banks.ØImprove the effectiveness of risk early warning.ØFirstly, monitor the risks of new real estate loans and interbank market liquidity risks*, and further improve the industry credit monitoring system;ØSecondly, we will closely track economic and financial conditions at home and abroad, further improve the monitoring, analysis and disposal system for risks in key areas, and prompt risks as early as possible by means of quarterly briefings on economic and financial conditions, meetings on prudent supervision, and so on, so as to move ahead and close the off-site supervision.ØAdhere to the risk - oriented, reasonable determination of on-site inspection items.ØFirstly, highlight high-risk links, organize and carry out on-site inspections of key areas such as loans to local financing platforms, bank financial services, real estate loans, and risk management of systemically important Banks.ØSecondly, follow the risks of different regions, different institutions and different businesses, and carry out special inspections according to the specific risks of the regulated institutions in accordance with the principle of differentiated supervision.ØThirdly, in accordance with the principle of "streamlining projects, overall planning and coordination, and rational distribution*", on-site inspection should be carried out at the level of corporate bodies to reveal, evaluate and control risks from the6.4.1 Symptoms and Cause of Bank Problems6.4.2 Principles for Dealing with Weak Banks6.4.3 Corrective Actions6.4.4 Resolution Issues and Exit6.4.5 Closure of the Bank: Depositor Pay-off Section 6.4 Dealing with Weak BanksØA weak bank is one whose liquidity or solvency is or will be impaired unless there is a major improvement in its financial resources, risk profile, strategic business direction, riskmanagement capabilities and/or quality of management.Section 6.4 Dealing with Weak BanksØIt is important to distinguish between the symptoms and causes of bank problems. The symptoms of weak banks are usually poor asset quality, lack of profitability, losses of capital, reputation problems, and/or liquidity problems. The different symptoms often emerge together. While banking difficulties usually result from a combination of factors, they have become evident as credit problems in the majority of cases. This should not be surprising given that lending has been and still is the mainstay of banking business. More often than not, credit losses stem from weaknesses in management control and credit risk management systems.ØApart from credit risk, a bank’s weakness may also stem from other risks, including interest rate risk, market risk, operational risk, and strategic risk.6.4.2 Principles for Dealing with Weak BanksThe guiding principles for a supervisor when dealing with weak banks include the following:ØSpeed.ØCost-efficiency.ØFlexibility.ØConsistency.ØAvoiding moral hazard.ØTransparency and cooperation.6.4.3 Corrective ActionsØCorrective actions are those actions required to deal with deficiencies and change the behavior in a bank. They can be implemented voluntarily by the bank under the supervisor’s informal oversight or, if necessary, via formal supervisory intervention.ØIn order to formulate a plan of corrective action, there has to be an assessment of the nature and seriousness of the weakness. An on-site assessment is usually the most efficient way of identifying the full extent and the nature of the problems facing a bank.1. Resolution TechniquesØResolution plans.ØMergers and acquisitions.ØPurchase-and-assumption transactions. ØBridge bank.2. Use of Public Sector Monies in ResolutionØPublic funds for the resolution of weak banks may be considered in potentially systemic situations, including the risk of loss or disruption of credit and payment services to a large number of customers.ØAlternatively, the government may offer solvency support to a weak bank to allow it to remain open for business, which may take the form of a direct capital injection, loans provided by the government to the bank, or the purchase of troubled assets by asset management companies created expressly for this purpose or other institutions whose losses are covered by the government.ØIf no investor is willing to step in to rescue the bank, the repayment of depositors and the liquidation of the bank’s assets are unavoidable.Basel Committee on Banking SupervisionØThe Basel Committee on Banking Supervision* is an international committee formed to develop standards for banking regulation; it is made up of central bankers from 27 countries and the European Union.6.4.5 Closure of the Bank: Depositor Pay-offBasel AccordsØThe first Basel Accords, or Basel I, was finalized in 1988 and implemented in the G10 countries, at least to some degree, by 1992.ØBasel I was followed by Basel II in 2004, which was in the process of being implemented when the 2008 financial crisis occurred.ØBasel III attempted to correct the miscalculations of risk that were believed to have contributed to the crisis by requiring banks to hold higher percentages of their assets in more liquid forms and to fund themselves using more equity, rather than debt.下节课见。