The following will be discussed in this chapter: Examples of bank supervision approaches, bank supervision in Britain, bank supervision in continental Europe, bank supervision in United States, bank supervision in Pakistan. | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: EIGHTEEN Summary of last session Supervisory Methodologies Off site Surveillance Organization Issues Staffing and Compensation Career Path Training Inaction in Restructuring Banks 2 Agenda of this session Examples of Bank Supervision Approaches Bank Supervision in Britain Bank Supervision in Continental Europe Bank Supervision in United States Bank Supervision in Pakistan 3 Bank Supervision in Britain The informal approach to bank supervision is best exemplified by the approach taken by the Bank of England. In Britain, supervision was traditionally carried out by the Bank of England in consultation with banks. 4 Bank Supervision in Britain (Contd.) Moral suasion, discretion, and personal contact were the principal tools of bank supervisors. Each bank had an individual relationship with the Bank of England. 5 Bank Supervision in Britain (Contd.) Banks made prudential returns but, unlike other systems of | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: EIGHTEEN Summary of last session Supervisory Methodologies Off site Surveillance Organization Issues Staffing and Compensation Career Path Training Inaction in Restructuring Banks 2 Agenda of this session Examples of Bank Supervision Approaches Bank Supervision in Britain Bank Supervision in Continental Europe Bank Supervision in United States Bank Supervision in Pakistan 3 Bank Supervision in Britain The informal approach to bank supervision is best exemplified by the approach taken by the Bank of England. In Britain, supervision was traditionally carried out by the Bank of England in consultation with banks. 4 Bank Supervision in Britain (Contd.) Moral suasion, discretion, and personal contact were the principal tools of bank supervisors. Each bank had an individual relationship with the Bank of England. 5 Bank Supervision in Britain (Contd.) Banks made prudential returns but, unlike other systems of supervision where examiners conduct onsite examinations to verify and extract information, the responsibility for passing on information to the Bank of England rested solely with the banks. 6 Bank Supervision in Britain (Contd.) For many years this system worked relatively well in a highly concentrated banking industry. However, the system came under stress when the number of banks increased as a result of the creation of so-called secondary banks and the influx of foreign banks in the late 1960s and early 1970s. 7 Bank Supervision in Britain (Contd.) The flaws of the informal system, which relied on information provided by management but without an independent assessment of the quality of bank portfolios and of the adequacy of provisions for possible loan losses, became apparent. 8 Bank Supervision in Britain (Contd.) Gradually, the British authorities adopted a more legalistic approach to bank regulation and supervision that brought British practice closer to continental European .
