United Supervision: Managing the Risks in a Diversified Financial Services Industry Barbara Baldwin June 2001

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Managing an account Groups. Two or more legitimate entitiesLinked through normal possession or controlProviding money related administrations (e.g., saving money, securities, insurance)Including no less than one bankCross-Sector and/or Cross-Border. Prudential Concerns. Virus (inside and between groups)Intra-bunch exchanges and exposures (e.g. cross shareholdings, between offshoot lending)Loss of ConfidenceExtension of authority

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´╗┐Solidified Supervision: Managing the Risks in a Diversified Financial Services Industry Barbara Baldwin June 2001

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Banking Groups at least two legitimate substances Linked through normal possession or control Providing budgetary administrations (e.g., saving money, securities, protection) Including no less than one bank Cross-Sector and additionally Cross-Border

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Prudential Concerns Contagion (inside and between gatherings) Intra-bunch exchanges and exposures (e.g. cross shareholdings, between offshoot loaning) Loss of Confidence Extension of authority wellbeing net to nonbank aggregate subsidiaries may prompt to good peril

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Prudential Concerns Transparency and Regulatory Arbitrage Complex corporate structures: Complicate a manager's appraisal of gathering danger introduction May be utilized to go around administrative necessities or to encourage false exercises May be utilized to adventure contrasts in administrative prerequisites crosswise over segments or potentially wards Conflicts of Interest

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Supervisory Implications "Solo" approach of administering individual gathering elements, missing contact with other monetary division chiefs, is no longer satisfactory "Solo supervision" must be supplemented with "united supervision"

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Consolidated Supervision The Components: Consolidation of Accounts Consolidated Regulation (Quantitative) Consolidated Supervision (Qualitative) Based on subjective and quantitative data about the gathering Allows budgetary part administrators to: Understand the connections among the legitimate substances Assess and screen how successfully the gathering distinguishes, oversees and controls dangers Recognize insipient issues

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Consolidated Supervision Objectives and Principles Promotion of systemic money related soundness Capture all individuals from the budgetary gathering in the supervisory program Formally Informally Making combined supervision operational by and by

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Consolidated Supervision Preconditions for Effective CS The lawful system Independence of the supervisory organization Degree of responsibility to the procedure

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Consolidated Accounting What is it? Why isn't that right? Which bookkeeping benchmarks apply? What is the extent of solidification?

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Consolidated Accounting Methods of Consolidation Full line-by-line Equity technique Proportional Consolidation Relevant IAS 27: Subsidiaries IAS 28: Associates IAS 31: Joint Ventures IAS 25: Investments The effect of IAS 39: Financial Instruments

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Quantitative Consolidated Supervision Prudential Requirements Capital Adequacy, Large Exposures,Connected Lending Many potential dangers can't be evaluated in monetary proportions Determination of how gathering connections may affect any controlled elements

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Quantitative Consolidated Supervision Takes more extensive record of the dangers postured by gathering substances, should they materially affect the notoriety or money related soundness of a bank

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Qualitative Consolidated Supervision Focuses on: far reaching marketable strategies and procedures Consolidated interior controls and hazard administration Management and hierarchical structure Degree of operational, lawful, key and reputational dangers

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Qualitative Consolidated Supervision Requires: Availability of noteworthy data about the combined gathering on a normal premise Frequent interchanges amongst chiefs and gathering administration Supervisors must see how the gathering is overseen by and by , not simply on paper

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Designing the CS program Large gatherings will require constant supervision from a systemic hazard point of view An expert or gathering of investigators ought to be selected to administer each budgetary gathering A yearly supervisory program ought to be intended for each gathering Supervisory assets ought to be allotted based upon the relative hazard profiles

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Supervisory Cooperation and Coordination Basic standards for cross-outskirt supervision: No remote foundation ought to escape Supervision ought to be satisfactory

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Minimum Standards All universal keeping money gatherings ought to be directed by a nation of origin specialist that proficiently performs solidified supervision The formation of a cross-fringe foundation ought to get the earlier assent of both host and home nation administrators

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Minimum Standards The nation of origin boss ought to have the privilege to assemble data from the cross-fringe foundations of the saving money bunches they manage If these base guidelines are not met, the host nation could force prohibitive measures important to fulfill its prudential concerns (counting disavowal of an application)

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Cooperation Between Home and Host Supervisors Allows them to release their supervisory obligations Ensures that the supervisory methodology for the gathering is thorough Facilitates recognition and prevention of cross-fringe wrongdoing

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Authorization Stage Considerations for Host Supervisor survey the house director's capacity to "competently" perform CS If CS is lacking, or the parent is not a controlled element in the nation of origin: Insist that specific conditions be satisfied, or Refuse the application Considerations for Home Supervisor Assess the host's supervisory benchmarks If insufficient, or obstructions to data exchange exist: Insist that specific conditions be satisfied, or Refuse assent for the saving money gathering to set up outside operations

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Authorization Stage Establishing a Strategy for Ongoing Supervision Home and host directors get comfortable with each other's targets and methodologies Allocation of duties regarding supervision of outside foundation concurred Information needs settled Information sharing components concurred Formal data sharing components don't guarantee, and ought not be seen as an essential for, supervisory collaboration

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Supervisory Cooperation Establishing Effective Supervisory Cooperation The flexibility to trade prudential data is an essential for compelling supervisory participation National bank mystery enactment is a noteworthy obstacle for successful cross-fringe supervision National bank mystery laws ought to be adjusted to guarantee sufficient supervisory data sharing

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Supervisory Cooperation Safeguards for Information Exchange Recipient ought to utilize the data just for supervisory purposes Recipient ought to guarantee privacy of data got Provider ought not breaking point beneficiary's utilization of data in completing supervisory obligations

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Conclusions Diversified budgetary gatherings are turning into the predominant institutional structure in the monetary administrations industry Effective united supervision is fundamental to the support of systemic budgetary security

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Conclusions Making it work will require a phenomenal level of supervisory participation Supervisory offices will experience various arrangement and reasonable issues in building up a viable structure for merged supervision