What does more intensive supervision look like?

What does more intensive supervision look like?

Large banks can expect to be on the receiving end of enhanced supervisory intensity

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The Financial Stability Board (FSB) has undertaken a cross-country review of the supervisory approaches being applied and developed for global systemically important banks (G-SIBs). Although focused mainly on G-SIBS, all large banks can expect to be on the receiving end of similar types of enhanced supervisory intensity.

Moves by national supervisors

In particular, the review highlights moves by national supervisors to enhance their:

  • risk assessments – covering a wider range of risks in a more structured framework (as, for example, in the European Banking Authority's (EBA’s) recently revised guidelines on supervisory review and evaluation)
  • understanding of SIBs’ business models – assessing the sustainability of, and vulnerabilities to, each SIB’s business model
  • focus on corporate governance, including risk governance, risk culture and taking a more active role in assessing the fitness and propriety of senior management and Board appointments
  • stress testing – including moves to apply a wider range of stress scenarios and to evaluate both quantitative and qualitative results.
  • data collection and analysis
  • recovery and resolution planning.

FSB encourages action

The FSB encourages national supervisors to continue on this path to more intensive supervision, with particular mention of:

  • more engagement with the senior management of SIBs, to inform supervisory risk assessments through enhanced understanding of business strategy, capital and liquidity needs, governance, risk management and risk culture; and to communicate supervisory objectives, priorities and desired outcomes, and more timely feedback on outcomes and key supervisory messages
  • improving SIBs’ ability to generate robust and timely risk information on a group-wide basis on an enterprise-wide basis. The implementation of the BCBS Principles for Risk Data Aggregation and Reporting, due in 2016 for G-SIBs, will be a key necessary step to achieve this outcome
  • enhancing international supervisory cooperation, not least through clarifying and activating the role of supervisory colleges in group-wide risk assessments.

FSB warnings

The FSB also warns that supervisory authorities need to:

  • establish clear objectives against which supervisory effectiveness can be assessed
  • ensure that data requests properly support risk assessment
  • manage effectively the supervisory resources required to deliver the volume of regulatory and supervisory change.

To those facing off against the ECB and the PRA in London a lot of this is quite familiar.

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