In March 2002 the Basel Committee on Banking Supervision (BCBS) released international supervisory guidance for dealing with weak banks, based on the experiences and circumstances of various countries. Intended as a toolkit for supervisors, the 2002 guidance examined a wide variety of bank problems and their background and causes, and assessed the pros and cons of the methods used to address them. The methods included preventive measures, early identification, corrective actions, resolution issues and exit strategies.
The BCBS has now published a consultative document on supervisory guidelines for identifying and dealing with weak banks. Once the guidelines are finalised they will replace the March 2002 guidance.
Key changes include:
- emphasising the need for early intervention and the use of recovery and resolution tools, and updating supervisory communication policies for distressed banks;
- providing further guidance for improving supervisory processes, such as incorporating macro-prudential assessments, stress testing and business model analysis, and reinforcing the importance of sound corporate governance at banks;
- highlighting the issues of liquidity shortfalls, excessive concentrations, misaligned compensation and inadequate risk management; and
- expanding guidelines for information-sharing and cooperation among relevant authorities.
The draft guidelines, which are intended for banking supervisors, are split into two parts:
- part I – identifying weak banks – considers the underlying supervisory pre-conditions for dealing with weak banks and techniques that should allow supervisors to identify problems in banks. It also considers preparatory work on recovery and resolution planning; and
- part II – dealing with weak banks – considers the corrective measures available to turn around a weak bank and resolution and exit strategies for failing or failed banks.
The deadline for comments on the consultative document 19 September 2014.