Featured Product

    IMF Paper on Implementing Prudential Standards in Developing Economies

    June 14, 2019

    IMF published a working paper that provides practical guidance on how developing economies, including non-Basel Committee member countries, could incorporate international standards into their prudential framework. The paper discusses the priorities when moving from Basel I to Basel III and presents five guiding principles for the adaptation of international standards (such as Basel III) to the banking systems in non-member countries of the Basel Committee.

    The paper builds on the extensive experience gained on technical assistance missions on banking supervision and regulation that the IMF provides every year to more than 70 countries as well as from the Financial Sector Assessment Program (FSAP), which has undertaken some 280 detailed assessments of banking supervision in over 160 jurisdictions since its inception in 1999. Considering the dominance of banks in the financial system of most developing economies, the paper focuses on banking regulatory and supervisory issues. The paper discusses how the Basel Core Principles for Effective Banking Supervision (BCPs) can be used to set appropriate priorities for improving banking sector oversight. The BCPs provide high-level principles that have proved to be useful when adapting and implementing international standards in many developing economies from the IMF membership. The paper also discusses the enhanced capital and liquidity prudential requirements, which have been developed post the global financial crisis. Finally, it discusses the priorities when moving from Basel I to Basel III.

    The paper highlights that new international standards, post the global financial crisis, provide a good basis for strengthening the financial systems in developing economies. However, no one-size-fits-all strategy exists to implement the post-crisis banking regulatory standards in developing economies. A thoughtful implementation of the post-crisis regulatory standards, which takes into account the specific characteristics of each jurisdiction, enhances banking system resilience in developing economies without conflicting with market development needs. Differences in financial development, the risk profile of the banking sector, and supervisory capacity need to be considered when establishing the priorities and the best path forward. Adjustments to international standards may be necessary but should observe the following guiding principles presented in the paper—

    • Rigor: Although international standards may need to be adapted to better suit developing economies, changes should not lead to less rigorous prudential frameworks that lead to less resilient financial institutions or promote riskier behavior.
    • Context: Furthermore, the regulatory framework must take into account the features of the risk environment that could be more pronounced, such as market illiquidity, high volatility, and challenges to the enforcement of claims and the execution of collateral.
    • Scope: While the characteristics of their financial systems may favor simpler standards, authorities should not compromise on the scope of regulation and must take in to account the fundamental regulatory weaknesses identified during the financial crisis.
    • Evolution: In adapting the standards and phasing in their implementation, it must be kept in mind that as financial systems deepen and become more complex, the regulatory framework will also need to support convergence to international practices.
    • Effectiveness: While the full set of international standards may not always be applicable to less complex and smaller financial markets, the underlying preconditions and expectations of the BCPs should be met.

     

    Related Link: Working Paper

     

    Keywords: International, Banking, Developing Economies, Basel III, Basel Core Principles, Regulatory Reform, IMF

    Featured Experts
    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484