BCBS published a report presenting the findings of a range-of-practice study on how supervisors worldwide have adopted frameworks, processes, and tools to support early supervisory intervention. The report examines approaches to early supervisory intervention, with a view to providing supervisors with the opportunity to further their understanding of this challenging issue.
Based on the practices observed, early supervisory intervention involves supervisors taking actions to correct an identified weakness or potential issue before rules or buffers are materially breached. In the context of prudential supervision, early intervention programs are aimed at minimizing the impact of material distress and the probability of failure of an individual bank or group of banks on the broader financial system. Early supervisory intervention is firmly entrenched within a risk-based approach to supervision, where the intensity of supervisory attention escalates as the risks and impact that an institution poses to financial stability increases. The study finds that early supervisory actions taken by supervisors depend not only on the expert judgment of supervisors but also, to a large extent, on an organizational infrastructure that sets in place:
- Supervisory reinforcement through both vertical and horizontal risk assessments to maximize the early detection of risks
- A clear framework for when actions should be taken
- Internal governance processes and programs to support supervisory development and capacity-building
No single supervisor uses or adopts all of the practices outlined in this report. Rather, these practices are a compilation of the range of approaches being used in various jurisdictions. Case studies are included to help illustrate some of these methods. The report also recognizes the extensive literature and guidance on the supervisory review process, supervisory frameworks, and methods, which many authorities use as part of their day-to-day on- and off-site monitoring. This report limits its references to practices, methodologies and tools used in the context of early supervisory intervention.
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