Consolidated supervision
From Wikipedia, the free encyclopedia
A quantitative and qualitative assessment of the strength of those business groups which contain banks (and other regulated financial institutions) in order to identify and evaluate all the risks to which these banks are exposed.
Financial supervision is not fully effective unless all the risks inherent to banks and affiliated FIs (i.e. the entire “banking” group) are identified, assessed, and if necessary, limited.
The Basel Committee on Banking Supervision promoted consolidated supervision in the 1970’s
- focus was on international banking groups
- aim was to ensure that entire bank - branches, subsidiaries and joint ventures - is subject to supervision
- Committee has issued much useful guidance
Contagian - Where a bank is affected by financial problems, such as insolvency or illiquidity, arising in another regulated or unregulated member of the banking group.
- Transfer of capital from the bank in an attempt to rescue another group member from financial difficulties
- Where the bank has credit exposure to a group member whose ability to repay is questionable
- Negative events involving a group member may trigger a loss of confidence in the bank
- Supervisory arbitrage
