What Is the Basel Committee on Banking Supervision?

The Basel Committee on Banking Supervision is also known as the Basel Committee. Established in February 1975 as a permanent supervisory authority under the Bank for International Settlements (also known as the "Cook" Committee, as Peter Cook, Bank of England's head of bank supervision has long chaired the committee). Consists of senior representatives of banking regulators and the central banks of Belgium, Germany, Canada, Japan, France, Italy, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States, usually at the International Settlement Bank in Basel (the permanent seat of the Secretariat) Hold a meeting. Three regular meetings per year. Its work is mainly dedicated to the following aspects: improving the effectiveness of international banking supervision skills; raising any questions that affect the engagement of international banking business, in order to improve the work of banking supervision around the world, and exchange information with various regulatory agencies around the world And opinions. The Commission does not bear a formal transnational regulatory responsibility, so the resolutions it makes have no legal effect, but because the Commission represents the world s most powerful economic group, its influence cannot be ignored. ^[1]

Basel Committee on Banking Supervision

The Basel Committee on Banking Supervision is also known as the Basel Committee. Established in February 1975 as a permanent supervisory authority under the Bank for International Settlements (also known as the "Cook" Committee, as Peter Cook, Bank of England's head of bank supervision has long chaired the committee). Consists of senior representatives of banking regulators and the central banks of Belgium, Germany, Canada, Japan, France, Italy, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States, usually at the International Settlement Bank in Basel (the permanent seat of the Secretariat) Hold a meeting. Three regular meetings per year. Its work is mainly dedicated to the following aspects: improving the effectiveness of international banking supervision skills; raising any questions that affect the engagement of international banking, in order to improve the work of banking supervision around the world, and exchange information with regulatory agencies around the world And opinions. The Commission does not bear a formal transnational regulatory responsibility, so the resolutions it makes have no legal effect, but because the Commission represents the world s most powerful economic group, its influence cannot be ignored. ^[1]

The Basel Committee itself does not have statutory transnational regulatory powers, and its conclusions or regulatory standards and guidelines have no legal force, and are for reference only. However, because the members of this committee come from the major developed countries in the world and have great influence, it is still expected that countries will adopt legislative provisions or other measures, and gradually implement the regulatory standards and guidelines set by them, or deal with relevant recommendations in practice in accordance with the actual conditions of each country. . Under the principles of "unavoidable supervision of foreign banking" and "appropriate supervision", eliminating the differences in the scope of supervision of countries around the world is the goal pursued by the operation of the Basel Committee.

The Basel Committee has formulated a number of agreements, regulatory standards and guiding principles, such as the "Agreement on the Unification of International Banks' Capital Measurement and Capital Standards" and the "Core Principles of Effective Banking Supervision." These agreements, regulatory standards and guidelines are collectively referred to as the Basel Accords. The essence of these agreements is to improve and supplement the shortcomings of the supervision system of commercial banks in individual countries, reduce the risks and costs of bank failures, and is the main form of joint supervision of international commercial banks. The formulation and promotion of these documents have played a positive role in stabilizing the international financial order.

In addition to the core principles, the committee also developed detailed guidance documents for assessing the compliance of the principles, that is, the core principles assessment method. The document was first issued in 1999 and was also revised during this review.

In June 2004, the Basel Committee on Banking Supervision announced

It is important to emphasize that the Commission does not have any formal regulatory privileges over the country, and its documents have neither and never attempted to have any legal effect. However, it has developed many regulatory standards and guidelines, promotes best regulatory practices, and expects countries to take measures to implement them through specific legislation or other arrangements based on their own circumstances. The Commission encouraged the use of common methods and common standards, but did not enforce consensus on the regulatory techniques of member states.

When it comes to banking supervision, you ca nt help but mention

An important task of the Commission is to plug the loopholes in international supervision. It follows two basic principles: no foreign banking institution can escape supervision; supervision should be adequate. In addition, the committee focused its research on capital adequacy.

In order to strengthen the stability of the international banking system and eliminate unequal competition caused by different requirements of countries for capital adequacy ratios, the Committee announced the famous "Basel" in July 1988 with the approval of the G10 Central Bank Governors Council. "Capital Agreement", which proposes a unified risk-weighted capital measurement standard and stipulates that it will be implemented no later than the end of 1992.

Since then, the committee has issued supplementary and amendment agreements to the capital agreement many times, constantly improving the system, and gradually including settlement risk and market risk into the capital measurement system.

Since 1998, this agreement has been adopted not only by member states, but also by virtually all other countries with international banks.

Initiated by the Bank for International Settlements in September 1974, U.S., British, French, German, Italian, Japanese, Dutch, Canadian, Belgian, Swedish G10 and central bank supervisors met in Basel to discuss international supervision and management of multinational banks Since then, a series of documents have been formed.

1975 Agreement (Cook Agreement) This agreement clearly defines the division of labor and supervision responsibilities of overseas banks. The focus of supervision is cash flow and solvency. This is the first time that the international banking supervisory authorities have jointly supervised international commercial banks. . In addition, the agreement raises two notable issues: the first is the impact of specific structural issues on international banking groups on specific regulations; the second is the importance of information exchange between supervisory authorities.

As the 1983 agreement differs greatly in the regulatory standards of various countries, there are also different opinions on the practical application of the division of regulatory responsibilities between the host country and the home country, which has fully exposed the weaknesses of the 1975 agreement. To this end, the Basel Committee was revised in May 1983. The two basic ideas of the agreement are: one is that no overseas bank can evade supervision; the other is that any supervision should be appropriate. The agreement provides more specific explanations of most of the principles of the 1975 agreement.

1988 agreement The full name of the agreement is the "Basel Committee Agreement on the Unification of International Banks' Capital Measurement and Capital Standards". The measurement standards and capital level provisions in the agreement are intended to eliminate unfair competition among banks by reducing the amount of capital required by each country. At the same time, the Commission believes that the level of capital ratios directly affect the solvency of multinational banks. The 1988 agreement was a big step forward from the 1975 and 1983 agreements on joint supervision of international banks by host and home countries. Because, through the provision of capital adequacy ratio, the banking supervisory authority can strengthen the supervision of capital and risk assets of commercial banks, and also have a quantitative standard for the supervision of the derivatives market. The basic content of the 1988 agreement consists of four aspects: the composition of capital; the risk-weighted system; the target standard ratio; the transition period and implementation arrangements.

-July 1992 Statement This statement was made by the Basel Committee on Banking Supervision in response to the lessons learned from the failure of the International Commercial Credit Bank to bring international banking supervision. The statement establishes the minimum regulatory standards for international banks, so that banking regulatory authorities in various countries can follow these standards to complete market access, risk supervision, and information acquisition requirements. Specific content: First, all international banking groups and international banks should be supervised by institutions that have the ability to exercise unified supervision. Second, the establishment of an overseas institution should be approved in advance by the host country supervisory authority and the bank or bank group home country supervisory authority. Third, the supervisory authority of the host country has the power to request information about the transnational branch from the supervisory authority of the bank or bank group's home country. Fourth, if the host country's supervisory authority believes that the party requesting the establishment cannot satisfy them in meeting the above minimum standards, from the prudence of meeting the minimum standards, the supervisory authority can take necessary restrictions, including prohibiting The agency.

Core Principles of Effective Banking Supervision by the Basel Committee on Banking Supervision

(Basel core principles)

(October 2006)

table of Contents

Revision description

Core principles

Prerequisites for effective banking supervision

Revision description

1. This document is a revised version of the core principles of effective banking supervision issued by the Basel Committee on Banking Supervision (hereinafter referred to as the Committee) 1 in September 1997. Since then, Core Principles Evaluation Method 2 has been introduced. In order to meet the basic requirements of good regulatory practice, many countries use core principles as a benchmark for assessing the quality of their regulatory systems and identifying future work requirements. Practice has proved that the self-assessment of the compliance of the core principles of each country has a good effect, which helps countries to find problems in the regulatory system and implementation and determine the focus of work for solving these problems. The revised version of Basel's core principles highlights once again the importance of conducting self-assessments. The International Monetary Fund and the World Bank have been using core principles in their financial sector assessment plans to assess the banking regulatory systems and practices of countries. However, major changes have taken place in the banking supervision system since 1997, and countries have accumulated rich experience in implementing core principles. Due to the emergence of many new problems in the regulatory system and implementation, and the growing awareness of people, the Commission promulgated many documents accordingly. Based on the above, it is necessary to revise the core principles and assessment methods.

2. In the process of revising the core principles and assessment methods, the Commission sought to ensure the continuity and comparability of the overall framework of the 1997 core principles. Practice has proved that the framework of 1997 worked well. Therefore, the Committee did not consider making extensive changes to the core principles, but instead focused its work on some aspects of the current structure that needed to be revised in order to keep pace with the times. The revision work will not question the effectiveness of previous work in any respect, let alone the assessment of relevant countries and reform plans based on the 1997 framework.

3. Another purpose of the revision is to improve, where possible, consistency between the core principles and standards related to securities, insurance and anti-money laundering and transparency standards. However, the core principles promulgated by the above-mentioned departments are aimed at different main risk points and regulatory tasks of each department. Therefore, reasonable differences between the principles will continue to exist.

4. In the revision work, the Committee and the Liaison Group of Core Principles (the working group is composed of senior members of some members of the Committee, non-G10 regulatory authorities, the International Monetary Fund and the World Bank, and holds regular meetings), Fully absorbed the work done by the contact group. The Commission also consulted other international standard-setting bodies, including the International Association of Insurance Regulators (IAIS), the International Organization of Securities Commissions (IOSCO), the Financial Action Task Force (FATF), and the Committee on Payments and Settlements (CPSS). opinion. At the invitation of the Commission, various regional regulatory organizations also commented on the revision. 3 Prior to finalization, the Commission also consulted extensively with national regulatory authorities, central banks, international industry associations, academia and other interested parties.

Core principles

5. The core principles are the minimum standards of good regulatory practice and are applicable to countries around the world. 4 The development of core principles and assessment methods has contributed to strengthening the international financial system. Regardless of whether it is a developing or developed country, problems in the banking system can pose a threat to the financial stability of a country and the world. The Committee believes that the implementation of core principles in countries around the world will help to greatly improve domestic and foreign financial stability and lay a good foundation for strengthening an effective regulatory system.

6. The Basel Core Principles set out 25 principles that an effective regulatory system should follow. These principles can be divided into seven areas in general: goals, independence, power, transparency and cooperation (Principle 1), the scope of the licensed business (Principle 2 to 5), prudent supervision rules and regulations (Principle 6 to 18), Various methods of continuous supervision (Principle 19 to 21), accounting treatment and information disclosure (Principle 22), supervisory authority's corrective and rectifying power (Principle 23) and consolidation and cross-border supervision (Principle 24 to 25). The specific content of each principle is as follows:

Principle 1-goals, independence, power, transparency and cooperation:

An effective banking supervision system requires that each banking supervision institution has clear responsibilities and goals. Each regulatory agency should have operational independence, transparent procedures, good governance structures, and adequate resources, and be accountable for performing its duties. A proper legal framework for bank supervision is also necessary, including the approval of the establishment of a bank, the power required to comply with the law, the safety and sound operation of compliance and the legal protection of supervisors. In addition, arrangements for information exchange and confidentiality between regulatory authorities should be established.

· Principle 2-Permitted business scope:

It is necessary to clearly define the scope of business that various types of institutions that have obtained a license and are equivalent to the supervision of banks, and strictly control the use of the term "bank" in the name.

· Principle 3-Licensing Standards:

Licensing agencies must have the right to formulate licensing standards and have the right to reject all applications that do not meet the standards. The licensing process should include, at a minimum, a review of the ownership structure and governance of the bank and its group, the qualifications of board members and senior management, the bank's strategy and business plan, internal control and risk management, and estimates including the size of capital Financial situation; when the bank's owner or parent company is approved as a foreign bank, the consent of its home country supervisory authority should be obtained in advance.

· Principle 4-Large transfer of ownership:

Banking supervisory authorities should have the power to review and reject applications for direct or indirect transfers of large amounts of ownership or control by banks.

· Principle 5-Major Acquisitions:

Banking supervisory authorities have the power to review large acquisitions or investments by banks based on established standards, including the establishment of cross-border institutions to ensure that their affiliates or organizational structures do not pose excessive risks or hinder effective supervision.

· Principle 6-Capital adequacy ratio:

Banking regulators must formulate prudent and appropriate minimum capital adequacy ratios that reflect a variety of bank risks, and define the composition of capital based on their ability to absorb losses. At least for international active banks, the capital adequacy ratio should not be lower than the relevant requirements of Basel.

· Principle 7-Risk Management Procedures:

Banking regulators must be satisfied to see that banks and banking groups have established comprehensive risk management procedures (including supervision by directors and senior management) that match their size and complexity to identify, evaluate, monitor, control or mitigate Significant risk, and assess the overall capital adequacy ratio based on the size of its own risk.

· Principle 8-Credit risk:

Banking supervisors must be satisfied to see that banks have a set of procedures for managing credit risk; this procedure should take into account the bank's risk profile and cover prudent policies and procedures for identifying, measuring, monitoring, and controlling credit risk, including counterparty risk . This should include making loans, conducting investments, assessing the quality of loans and investments, and the ongoing management of loans and investments.

Principle 9-Problematic assets, preparations and reserves:

Banking supervisors must be satisfied to see that banks have established effective policies and procedures for managing problematic assets, evaluating preparations and adequacy of reserves, and are following them carefully.

· Principle 10-Large risk exposure limits:

Banking supervisors must be satisfied to see that the bank's policies and procedures can help management identify and manage risk concentration; bank supervisors must set prudent limits to limit banks' exposure to risks to a single counterparty or related party group.

Principle 11-Exposure to related parties:

In order to prevent problems caused by exposure to related parties (on and off-balance sheet) and resolve conflicts of interest, bank supervisory authorities must stipulate that banks should issue loans to affiliated enterprises and individuals in accordance with commercial principles; Monitoring; take appropriate measures to control or mitigate risks. Reversal of related-party loans should be carried out in accordance with standard policies and procedures.

· Principle 12-Country risk and transfer risk:

Banking supervisors must be satisfied that banks have effective policies and procedures for identifying, measuring, monitoring, and controlling national and transferred risks in international credit and investment, and establish adequate preparation and reserves for both types of risks.

· Principle 13-Market risk:

Banking supervisors must be satisfied to see that banks have policies and procedures to accurately identify, measure, monitor and control market risks; bank supervisors should have the power to set specific limits and / or specific market risk exposures when necessary Capital requirements.

· Principle 14-Liquidity risk:

Banking supervisory authorities must be satisfied to see that banks have a management liquidity strategy that reflects the bank's own risk profile, and have established prudent policies and procedures to identify, measure, monitor and control liquidity risks and manage liquidity on a daily basis. Banking supervisors should require banks to establish contingency plans to deal with liquidity issues.

· Principle 15-Operational risk:

Banking regulators must be satisfied that banks should have risk management policies and procedures that identify, evaluate, monitor, and control / mitigate operational risks that match their size and complexity.

· Principle 16-Bank account interest rate risk:

Banking regulators must be satisfied to see that banks have effective systems for identifying, measuring, monitoring, and controlling interest rate risk in bank accounts that match the scale and complexity of the risk, including implementation by senior management with the approval of the board of directors. Clear strategy.

Principle 17-Internal Control and Audit:

Banking regulators must be satisfied to see that banks have internal controls that match the size and complexity of their business. All internal controls should include clear regulations on authorization and responsibilities, bank commitments, separation of functions in payments and asset and liability accounting, cross-checking of the above procedures, asset protection, perfect independent internal audit, and inspection of the above controls Functions and compliance with relevant laws and regulations.

· Principle 18-Prevention of criminal activities using financial services:

Banking regulators must be satisfied to see that banks have sound policies and procedures, including strict "know your customers" regulations, to promote a higher professional ethics and professional standards in the financial sector and prevent intentional or unintentional exploitation Banks engage in criminal activities.

· Principle 19-Supervision:

An effective banking supervision system requires supervisory authorities to have a thorough understanding of the overall situation of individual banks, banking groups, and the banking system, as well as the stability of the banking system. The focus of work is on safety and soundness.

· Principle 20-Supervision technology:

An effective banking supervision system should include on-site inspections and off-site inspections. Banking regulators must have frequent contacts with bank management.

· Principle 21-Regulatory Report:

Banking supervisory authorities must have the means to collect, review and analyze the prudential reports and statistical statements of individual banks on a single and consolidated basis. The supervisory authority must have the means to independently check the above statements through on-site inspections or using external experts.

· Principle 22-Accounting and disclosure:

Banking supervision authorities must be satisfied to see that banks must maintain complete records in accordance with internationally accepted accounting policies and practices, and regularly publish information that fairly reflects the bank's financial condition and profitability.

· Principle 23-Corrective and Corrective Powers of Supervisory Authorities:

Banking regulators must have a set of tools for timely corrective action. These tools include the revocation of bank licenses where appropriate or the recommendation to revoke bank licenses.

· Principle 24-Consolidated supervision:

A key element of banking supervision is the supervision of bank groups by the supervisory authority, which effectively monitors and, when appropriate, makes prudent requirements on all aspects of group-level business.

· Principle 25-Relationship between home country and host country:

Consolidated supervision of cross-border business requires cooperation and exchange of information between the home country banking supervisory authority and other relevant supervisory authorities, especially the host country supervisory authority. Banking regulators must require foreign banks to conduct local business in accordance with the same standards as domestic banks.

7. As long as the main objectives can be achieved, the core principles have a neutral attitude towards different regulatory approaches. The core principles are not intended to cover the different needs and circumstances of various systems. Instead, the special circumstances of each country should be duly taken into account during the assessment through a dialogue between the assessor and the national regulatory authority.

8. Countries should implement core principles for all banks in their jurisdictions. 6 Countries can go beyond the core principles to meet the requirements of best regulatory practices, especially in countries with developed markets and banks.

9. Improving the compliance of core principles will help improve the stability of the entire financial system. However, this does not necessarily ensure the stability of the financial system, nor will it prevent the failure of a single bank. Banking supervision cannot and should not ensure that all banks fail. In a market economy, bankruptcy is one of the risks.

10. The Commission encourages States to implement the core principles in cooperation with other regulatory authorities and interested parties. The Commission hopes that international financial organizations and donor agencies will use core principles to help countries strengthen regulatory efforts. The Commission will continue to strengthen its cooperation with the International Monetary Fund and the World Bank in monitoring the implementation of prudential standards for banks. The Commission will also continue to strengthen cooperation with regulatory authorities in non-G10 countries.

Prerequisites for effective banking supervision

11. An effective banking supervision system depends on some external factors or prerequisites. Although these prerequisites are not under the direct jurisdiction of the bank supervisory authority, in practice they have a direct impact on the effectiveness of bank supervision. If the prerequisites are not perfect, the banking supervisory authority should draw the government's attention to these issues and their actual or potential negative impact on the achievement of regulatory goals. As part of their work, banking supervisory authorities should respond to this and strive to reduce the adverse effects of the above problems on the effectiveness of supervision. These external factors include: sound and sustainable macroeconomic policies; sound public infrastructure; effective market constraints; and moderate systemic protection mechanisms (or public safety nets).

12. A sound macroeconomic policy is the foundation for achieving stability in the financial system. Banking authorities are not responsible for this work. However, regulators need to respond if they notice that current policies undermine the security and robustness of the banking system.

13. If the public infrastructure is not perfect, the financial system and market stability and development will be affected. A sound public infrastructure includes the following: · A long-term commercial law system that helps to resolve disputes fairly, including corporate law, bankruptcy law, contract law, consumer protection law, and private property law; Clear accounting standards and regulations; Independent auditing system for larger companies to ensure that users of financial statements (including banks) believe that all types of accounts can truly and fairly reflect the company's financial status and various accounts It should be established in accordance with established standards and the auditor should be responsible for its work; · an effective and independent judiciary and the regulated accounting, auditing and lawyers profession; · having participants in other financial markets and where appropriate these markets Clear regulations and full supervision. Safe and effective payment and clearing system to ensure the clearing of financial transactions and control counterparty risk.

14. Effective market constraints depend on whether market participants can obtain sufficient information, whether well-managed banks can receive appropriate financial rewards, and whether there are various arrangements that hold investors accountable for the results of their decisions. Many issues involved here include corporate governance structures and the provision of accurate, meaningful, timely, and transparent information by borrowers to investors and creditors. If the government tries to influence or change business decisions (especially loan decisions) to achieve public policy goals, market signals will be distorted and market discipline will be weakened. In these cases, if the government provides loan guarantees, the guarantee contents should be disclosed and measures should be taken to compensate financial institutions when policy loans default.

15. In general, the identification of modest systemic protection is a matter of policy involving other sectors, including central banks, especially when public funds are needed. With a good understanding of the situation in relevant departments, banking supervisory authorities can generally play a role. It is important to clarify the difference between systemic protection (or safety nets) and day-to-day supervision of normal institutions. When dealing with systemic problems, on the one hand, we must solve the problem of confidence that affects the financial system to prevent the problem from spreading to other healthy banks; on the other hand, we must pay attention to minimizing the distortion of market signals and market constraints. 7 In many countries, deposit insurance systems are a form of systemic protection. If the deposit insurance system is properly designed and helps reduce moral hazard, it can increase public confidence in the banking system and prevent the spread of risk from problematic banks.

The Basel Accord is a general term for a number of important agreements reached by the central bank in Basel, Switzerland (including the United States, the United Kingdom, France, Germany, Italy, Japan, the Netherlands, Belgium, Canada, Sweden, Luxembourg, and Switzerland). .

In February 1975, representatives of the Group of 10 (G10) from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States met in Basel, Switzerland, to discuss the establishment Basel Committee on Banking Supervision (Basel Committee for short).

The original purpose of the establishment of the Basel Committee is to provide a platform for financial regulators in various countries to exchange and share information and views through the member countries' representatives to the Committee and representatives of countries from three to four meetings a year. To achieve the purpose of promoting international cooperation in bank supervision, reducing bank operation risks and maintaining global financial stability. Although the Basel Committee does not have supervisory privileges that surpass the sovereignty of various countries, and the agreements and documents it publishes and implements are not legally binding, in the more than three decades since its establishment, the Basel Committee has advocated regulatory standards and The guiding principles have been widely used in the international banking industry, greatly improving the risk management capabilities of commercial banks in various countries.

On March 16, 2009, the Basel Committee decided to recruit Australia, Brazil, China, India, South Korea, Mexico and Russia as new members of the organization.

On June 10, 2009, the Basel Committee invited non-Basel Committee members from the Group of 20 (G20), Singapore and Hong Kong, China to join the Committee. New G20 members to the Basel Committee include Argentina, Indonesia, Saudi Arabia, South Africa and Turkey. So far, the members of the Basel Committee have expanded to 27 major countries and regions in the world, including Argentina, Australia, Belgium, Brazil, Canada, China, Hong Kong, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Luxembourg, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, United Kingdom, United States, and Turkey.