The following will be discussed in this chapter: Banking supervision, bank supervision models in the industrialized countries, basel guidelines on supervision, supervisory methodologies, on-site examinations, financial sector of Pakistan,. | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: THIRTY TWO Banking Supervision An ineffective legal framework may result in banking system distress but, more often than not, lack of enforcement and supervision are equally at fault. 2 Banking Supervision (Contd.) Supervisory problems may be rooted in: conflicting public policy goals for supervision; political interference; a lack of political will to deal with problems; organizational weaknesses such as: understaffing, inadequate compensation, poor leadership, and divided supervisory responsibilities; and the lack of a clear understanding on the role of supervision. 3 Banking Supervision (Contd.) Problems may also result from examination methodologies that focus on technical compliance with laws. In some cases, problems also occur because of the lack of an early warning system and off-site surveillance capabilities. More often than not, though, supervisory problems result from a combination of . | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: THIRTY TWO Banking Supervision An ineffective legal framework may result in banking system distress but, more often than not, lack of enforcement and supervision are equally at fault. 2 Banking Supervision (Contd.) Supervisory problems may be rooted in: conflicting public policy goals for supervision; political interference; a lack of political will to deal with problems; organizational weaknesses such as: understaffing, inadequate compensation, poor leadership, and divided supervisory responsibilities; and the lack of a clear understanding on the role of supervision. 3 Banking Supervision (Contd.) Problems may also result from examination methodologies that focus on technical compliance with laws. In some cases, problems also occur because of the lack of an early warning system and off-site surveillance capabilities. More often than not, though, supervisory problems result from a combination of these factors. 4 Bank Supervision Models in the Industrialized Countries Bank supervision in the industrialized countries developed in response to financial crises, economic events, and political phenomena. 5 Basel Guidelines on Supervision These guidelines are contained in the Basle Concordat," which embodied the following key principles: (1) supervision of foreign banking establishments is the joint responsibility of parent and host authorities, (2) no foreign banking establishment should escape supervision, 6 Basel Guidelines on Supervision (Contd.) (3) supervision of liquidity should be the primary responsibility of the host authorities, (4) supervision of solvency is essentially a matter for the parent authority in the case of foreign branches and primarily the responsibility of the host authority in the case of foreign subsidiaries, and 7 Basel Guidelines on Supervision (Contd.) (5) practical cooperation should be promoted by the exchange of information between host and parent .
