Banking Supervisory Authority Research Articles

Implementation of Aaoifi Standard No.35 by Saudi Islamic Banks: Opportunities and Challenges

Purpose of the study: The research aims to study and analyze the reality of reserves in Islamic banks in light of Financial Accounting Standard No. 35 issued by AAOIFI in 2018. In addition to determining the accounting irregularities or errors, in the practice of accounting and disclosure related to reserves in Saudi Islamic banks. Theoretical Framework: The research is based on the financial standards of the Islamic banks. Recent financial crises have prompted increased attention from the international community on the need for domestic financial institutions to be strengthened in order to better withstand subsequent emergencies. To ensure national and international financial stability, standards have been developed and implemented to encourage better policies and stronger institutional and market foundations. The international standards community's initiatives provide a comprehensive approach to promote the financial standards of the Islamic banks. It is crucial that self-assessments be supplemented with an impartial external check on conformity with standards. Design/Methodology/Population: The researchers applied the inductive analytical approach for evaluating the financial standards of the Islamic banks. The study population consists Islamic banks In Saudi Arabia: Bank Albilad, Al-Rajhi Bank, and Alinma Bank. The research analyzed the financial statements of three Islamic banks. Findings: The research concluded that all Saudi Islamic banks do not apply the accounting standards issued by AAOIFI. These bank's financial statements do not reflect the reality of their financial position, because they only apply traditional accounting standards. The Saudi Islamic banks do not apply the accounting standard issued by AAOIFI Standard No.35. The reasons behind the non-application of Islamic accounting standards issued by the AAOIFI in Saudi Islamic banks are the Saudi Banking Law and the instructions of the Saudi Central Bank. In addition, shareholders in Islamic banks bear all reserves and provisions. Research, Practical and Social Implications: The research suggests that banking supervisory authorities in the Kingdom of Saudi Arabia have to take the necessary measures to amend the laws and instructions related to Islamic banks., and to follow up efforts by AAOIFI with central banks in the countries in which Islamic banks operate to oblige Islamic banks to the accounting standards issued by AAOIFI. Originality/Value: The research is unique in identifying the importance of the AAOIFI standards in improving the financial standards of the Islamic banks.

Die diskretionären Eigenmittelkomponenten am Beispiel der national systemrelevanten österreichischen Banken

The regulatory amount, the composition and the quality of own funds which have to be held by banks are based on several components which can be divided into automatic and discretionary components. Automatic means that the calculation basis, the amount and the quality of the own funds to be held follow a common rule – the same for all banks. On the contrary discretionary components are fixed on an individual, banc-specific base (f.e. risk-profile, SREP-grade etc.). The main target of the following report is to analyse the amount of the discretionary components like the buffer for national systemic-relevant banks and their Pillar 2-SREP-Add-on between 2021 and 2023. Changes of discretionary parameters can reveal changes in the perception of risk and resilience by the banking supervisory authority.

The effects of supervisory stress testing on bank lending: examining large UK banks

In this paper, we study the effects of supervisory stress test exercises on 19 UK banks over the 2005–2018 period. The novelty of our approach is that we include two stress testing timelines from two banking supervisory authorities. Using a difference-in-difference methodology, in a first step, we analyse the effects of the Bank of England’s stress tests on the lending behaviour of large UK banks. In a second step, for robustness, we also examine the stress tests administered by the European Banking Authority. Our main result is that banks that failed the stress tests reduced lending. Additionally, we show that the effectiveness of the stress tests exercises remained unchanged throughout the period.

EU-27 bank failure prediction with C5.0 decision trees and deep learning neural networks

This article provides evidence that machine learning methods are suitable for reliably predicting the failure risk of European Union-27 banks from the experiences of the past decade. It demonstrates that earnings, capital adequacy, and management capability are the strongest predictors of bank failure. Critical and relevant field research is presented in the context of economic uncertainties arising from the COVID-19 pandemic. The results suggest that the developed models possess high predictive power, with the C5.0 decision tree model providing the best performance. The findings have policy implications for bank supervisory authorities, bank executives, risk management professionals, and policymakers working in finance. The models can be used to recognize bank weaknesses in time to take appropriate mitigating actions.

Fintech & Risks. A Bibliometric Analysis

Our study highlights a literature map on Fintech and the risks associated with this technological innovation in the financial sector. Considering all the studies published from 2014 to 2021 in "Scopus", we resort to econometric techniques to create our map. Our results show the recent attention of academics and researchers, mainly belonging to the technological and IT areas, towards Fintech. In particular, the studies focus on the issue of emerging technologies applied to investment and credit processes linked to the assessment of customer insolvency risk. For this reason, the existing analyzes adopt a mainly technical approach with very limited attention to strategic, organizational and managerial aspects typical of financial intermediation. Future studies could investigate the issue of Fintech behavior and relations with incumbent banks, as well as the risks that the applications of emerging digital technologies have on the sound and prudent management of these operators. In addition, further analysis can capture the risks of Fintech for clients, taking into account financial education. These are important aspects for the growth of Fintechs themselves, for the sustainability of the incumbent banks, with which they increasingly collaborate, and obviously for the banking supervisory authorities, attentive to the stability, efficiency and competitiveness of the financial sector as a whole.

Ownership and Governance of Central Banks: Insights from the Italian Experience

Between the end of 2013 and the beginning of 2014, a radical reform of Banca d’Italia – the Italian central bank and banking supervisory authority – was enacted. It was the last chapter of an historical evolution, started in 1893 with its incorporation as a joint-stock-corporation under private law, whose result places the Italian system within the niche of countries that entail the participation of private investors to the ownership and governance of central banks. This article analyzes the relevant Italian regulation also by comparing it with other international experiences. While most of the debate on central banking independence focuses on independence from politics, this article explores another side of the problem, namely the risk of capture by the banking sector and of subsequent conflicts of interests.Said risk significantly increases when the central bank’s shareholders are private investors which elect some of its governing bodies and receive dividends out of its earnings. Since a central bank carries out monetary operations that generate seigniorage, the distribution of profits out of these earnings is a transfer of public value to the private sector. Such circumstances can create incentives for the owners to influence the central bank’s decisions, also according to the magnitude of the values at stake.

Do supervisory enforcement actions affect board composition?

AbstractResearch Question/IssueDo enforcement actions impact banks' board composition? Based on a unique sample of sanctions imposed on Italian banks by the country's banking supervisory authority from 2009 to 2015, we investigate whether supervisory enforcement actions affect changes at the board level. Moreover, we examine whether changes at the board level after a sanction are effective in reducing the probability of further sanctions in the future.Research Findings/InsightsThe findings reveal that sanctioned banks change their board composition following a supervisory sanction. We further test whether these changes improve bank governance and find that, under certain conditions, they may reduce the probability that the board is sanctioned again. Robustness tests confirm the results.Theoretical/Academic ImplicationsThis study provides empirical evidence that supports the role of supervisory enforcement actions in inducing banks to adopt changes at the board level. Given that the relationship between supervisory sanctions and changes in board characteristics is still neglected, we contend that our results may increase the understanding of the effectiveness of enforcement actions in improving board characteristics.Practitioner/Policy ImplicationsWe believe that our results have policy implications by making a clear and concrete contribution to the ongoing debate on the revision of the principles for enhancing corporate governance and banking supervision.

Effect of Credit Risk and Liquidity Risk on the Performance of Commercial Banks in Ghana

In recent years, commercial banks in Ghana have seen great development in assets and profitability and have been playing increasingly important roles on national economy and social development which has become irreplaceable in a wide range. However, financial risks have been identified as the cause of hinderances to the banks’ normal development and has rendered some banks to fail. In recent years, Ghana’s commercial banks have faced vigorous challenges. An important setback is the collapsing and merging of commercial banks and the increment of the minimum capital requirement. The cause of these misfortunes can be attributed to the combine effect of liquidity risk and credit risk since bank managements, supervisory authorities and government overlooked their impact. The focus of this paper is to study the impact of credit risk and liquidity risk on the performance of commercial banks in Ghana. The paper studied the annual and financial reports of licensed commercial banks in Ghana over a period of 14 years. The hypotheses generated for the study was tested using the OLS regression. The results revealed a negative relationship between non-performing loans and performance (ROA). Similarly, credit ratio and loan to deposit ratio also had a negative effect on ROA of banks in Ghana. On the contrary, liquidity ratio revealed to have a positive relationship with the dependent variable. The study recommended that, Ghanaian commercial banks must adopt a general framework for liquidity risk and credit risk management to ensure avoidance or reduction in the occurrence of these risks. Control variables help to check the robustness and also explain the objectives of the study in a more precise way. Keywords : Credit Risk; Liquidity Risk; Commercial Banks: Performance; Ghana DOI: 10.7176/RJFA/11-17-11 Publication date: October 31 st 2020

Совершенствование системы обеспечения гарантий надежности возврата сбережений в российском банковском секторе

One of the most multifaceted and multidimensional socially significant categories in the development of the Russian savings system is its stability and relia-bility. In this regard, the study of ways to improve the system of guarantees of reliability of savings in the banking sector as one of the segments of the Russian savings system is an important tool in de-termining the directions of its further effective de-velopment. The paper assesses the main levels of implementation of the modern system of guarantees of the reliability of savings return in the banking sector, analyzes the world experience of building Deposit insurance systems, reveals the transfor-mation of insurance compensation in the historical perspective and methods of deducting contribu-tions to the Deposit insurance Fund. The directions of improving the efficiency of the Deposit insurance system are highlighted, namely: the use of strict measures to detect criminal mechanisms in Deposit insurance, strengthening control by bank superviso-ry authorities and banks’ creditors, improving finan-cial literacy of the population, expanding the boundaries of the Deposit insurance system in the extension of state guarantees to entities and funds trust management. The author’s mechanism for im-plementing guarantees of reliability of savings re-turns in the subsystem of banking institution is proposed.

The Response of the European Central Bank to the Current Pandemic Crisis: Monetary Policy and Prudential Banking Supervision Decisions

Immediately after the outbreak of the current pandemic crisis, the EU developed a (rather) consistent strategy, by taking measures in order to deal with health emergency needs, support economic activity and employment, preserve monetary and financial stability and prepare the ground for recovery; these contain a combination of government fiscal stimuli (with extensive resort to the principle of solidarity), emergency liquidity and monetary policy measures and measures relating to financial stability. After briefly reviewing all these measures from a systematic point of view, the present article further analyses the role of the European Central Bank (ECB) during the first phase of this crisis, both in its capacity as a monetary authority within the Eurosystem and in its capacity as prudential banking supervisory authority within the Single Supervisory Mechanism (SSM), with particular emphasis on the treatment of non-performing loans (NPLs). Its specific contribution to financial macro-prudential oversight within European Systemic Risk Board (ESRB) is also highlighted.

The Response of the European Central Bank to the Current Pandemic Crisis: Monetary Policy and Prudential Banking Supervision Decisions

Immediately after the outbreak of the current pandemic crisis, the EU developed a (rather) consistent strategy, by taking measures in order to deal with health emergency needs, support economic activity and employment, preserve monetary and financial stability and prepare the ground for recovery; these contain a combination of government fiscal stimuli (with extensive resort to the principle of solidarity), emergency liquidity and monetary policy measures and measures relating to financial stability. After briefly reviewing all these measures from a systematic point of view, the present article further analyses the role of the European Central Bank (ECB) during the first phase of this crisis, both in its capacity as a monetary authority within the Eurosystem and in its capacity as prudential banking supervisory authority within the Single Supervisory Mechanism (SSM), with particular emphasis on the treatment of non-performing loans (NPLs). Its specific contribution to financial macro-prudential oversight within European Systemic Risk Board (ESRB) is also highlighted.

“Fit and proper” regulations in the banking industry: What we have learnt in the post-crisis years

In a highly influential paper, Bradford (2015) coined the term “Brussels effect” to describe the way the EU regulatory power is externalized to third countries via consumer markets. In this paper, we analyze whether there is a Brussels effect in the finance industry as well. To do so, we study the evolution and regulatory changes put in place in Europe after the financial crisis to ensure that directors in the banking industry are adequately qualified and competent to meet the expertise and education requirements (the “fit and proper” criteria). We find that, as a result of the latest financial crisis, stricter board requirements were paired with stricter controls from the banking supervisory authorities in Europe. We describe the post-crisis regulatory framework as being characterized by 1) a strong commitment to regulation of risk management, 2) a multilayered control system and 3) a harmonized system with a strong presence of national regulatory authorities. We conclude that the European Union – through European Banking Authority (EBA) and the European Single Supervisory Mechanism (SSM) – has become a standard setter for the banking industry promoting international financial standards and “hardening” the soft law recommendations with directives and binding technical standards as regulatory instruments.

Der Umgang mit Krediten in Zeiten von COVID-19

The COVID-19 crisis raises the question of how to deal with loans that (could) become non-performing due to the extensive economic impact of the crisis. There are several options for action, each of which has to take account consumer and regulatory framework conditions. While the domestic legislator has not yet taken any legal measures in the field of credit law, legislators of other european member states and the European banking supervisory authorities have already taken measures.

Ownership and Governance of Central Banks: Insights from the Italian Experience

Between the end of 2013 and the beginning of 2014, a radical reform of Banca d’Italia – the Italian central bank and banking supervisory authority – was enacted. It was the last chapter of a historical evolution, started in 1893 with its incorporation as a joint-stock-corporation under private law, whose result places the Italian system within the niche of countries that entail the participation of private investors to the ownership and governance of central banks. This article analyzes the relevant Italian regulation also by comparing it with other international experiences. While most of the debate on central banking independence focuses on independence from politics, this article explores another side of the problem, namely the risk of capture by the banking sector and of subsequent conflicts of interests. Said risk significantly increases when the central bank’s shareholders are private investors which elect some of its governing bodies and receive dividends out of its earnings. Since a central bank carries out monetary operations that generate seigniorage, the distribution of profits out of these earnings is a transfer of public value to the private sector. Such circumstances can create incentives for the owners to influence the central bank’s decisions, also according to the magnitude of the values at stake.

Evaluating the Performance of Public Sector Banks “Bank of Baroda and Punjab National Bank”: An Application of Camel Model with Capital and Earning Parameter

The CAMELS rating system is a recognized international rating system that bank supervisory authorities use in order to rate financial institutions according to six factors represented by the acronym CAMELS. The present study focuses on the evaluation of Bank of Baroda and Punjab National Bank with CAMELS model. Study is based on the secondary data drawn from the annual reports of respective banks. Data of five years i.e. from 2011–12 to 2015–16 are analyzed by calculated 6 ratios related to CAMELS model. Statistical tool t-test has been used for evaluating the financial performance of these two banks. Data is analyzed manually without using any software. And results show that financial performance of Bank of Baroda is better than Punjab National Bank.

APPROACHES TO THE CALCULATION OF ECONOMIC CAPITAL UKRAINE BANKING SYSTEM

Introduction. Indicated that it determines the degree of capital adequacy of financial stability of the bank, so there is the element of the resource base of the bank, which should cover the risks arising in its activities. Therefore, proposed on the one hand say that the greater range of operations conducted by the bank, the greater the volume of investments in it, the more losses it may incur and the more he should be the level of capital adequacy to ensure stability in the implementation of the relevant risks. The attention that the low level of capital adequacy of the bank leading to a dangerous increase risks a negative impact on its financial stability. The comparison of approaches to the calculation of economic capital. The purpose of the study is to determine the best approaches for calculating economic capital in the presence of risk in the banking system arising in connection with the stability of the economy and fluctuations in the banking system. Results. In the sense of economic capital calculation and the effectiveness of its many internal and external stakeholders with regard to banking institutions and organizations, such as the management of bank supervisory authorities, rating agencies and shareholders. Even before the transition to the stage of calculating economic capital of most Ukrainian banks to make a number of steps to ensure that the basic requirements for risk management. Conclusion. The regulation of capital adequacy of the bank must comply with two ends, as overstating this value and reducing its value affects the reliability of the bank

: Dodd-Frankk (Effects of the Dodd-Frank Act on Bank Financing: Evidence from US Commercial Banks)

Korean Abstract: 본 논문은 2010년 도드-프랭크법(Dodd-Frank Wall Street Reform and Consumer Protection Act)의 도입으로 더욱 높은 퇴출압력에 직면하게 된 미국의 중소형은행들이 자금조달 방식을 변화시키는지를 분석하였다. 2009~2012년 미국 상업은행들에 대한 패널데이터를 구축하여 연구한 결과, 대마불사와 구제금융의 관행을 종식시키고자 도입된 도드-프랭크법의 시행이후 대형은행들보다는 중소형은행들이 더욱 많이 도산하였으며, 자산규모가 작거나 위험이 큰 은행일수록 부보예금 수신금리 및 수신비중이 높음을 발견하였다. 이는 도드-프랭크법 도입 이후 더욱 높은 퇴출압력에 직면하게 된 부실 중소형은행들이, 예금보험제도로 인해 시장규율이 효과적으로 작동하기 어려운 부보예금의 수신금리를 높여 적극적으로 부보예금을 유치하였음을 시사한다. 이러한 결과에 기초하여 본 논문에서는 부실 중소형은행들이 과도하게 높은 예금금리를 제시할 경우 규제 및 감독을 강화할 것을 제안한다. English Abstract: Using a panel dataset for US commercial banks over the period 2009-2012, we investigate whether banks change their financing behavior after the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010(“the Dodd-Frank Act”). The Dodd-Frank Act was introduced to improve financial stability by aiming to end the “too-big-to-fail” practice associated with large banks. Using quarterly financial statements, we find that the Dodd-Frank Act affected banks' financing behaviors. Risky banks pay higher interest rates to depositors after the enactment of the Dodd-Frank Act, as they rely more on deposits and less on market-based financing. Empirical findings in this study suggest that risky banks might offer excessive interest rates on insured deposits. Our study has policy implications, specifically that banking supervisory authorities should intensify their monitoring and supervision of banks' financing behaviors, due to the moral hazard of risky banks.

ОЦІНКА КОНКУРЕНТОЗДАТНОСТІ БАНКУ

Досліджено роботи вітчизняних та зарубіжних вчених, які присвячені аналізу конкурентоздатності банку; визначено сутність конкурентоздатності банку; виокремлено основні напрями оцінки конкурентоздатності банку; запропоновано концептуальні підходи щодо оцінки конкурентоздатності банку; розроблено та апробовано економіко-математичну модель оцінки конкурентоздатності банку

Regulação da auditoria em sistemas bancários: análise do cenário internacional e fatores determinantes

Este estudo empírico-analítico tem por objetivos promover uma comparação dos níveis de regulação da atividade de auditoria em instituições bancárias e avaliar a relação entre esse grau de regulação e características dos sistemas bancários nacionais. Utilizou-se uma base de dados mantida pelo Banco Mundial, contendo pesquisa realizada junto a autoridades supervisoras e regulatórias bancárias nacionais de 172 países. Por meio de estatísticas descritivas, foi constatado que o nível mais elevado de regulação é registrado nas nações mais desenvolvidas e nos países do Oriente Médio, Norte da África, Europa e Ásia Central. Também foi constatado que o Brasil apresenta grau de regulação superior à média verificada internacionalmente. Quanto aos testes realizados, por meio de regressão, para avaliar a relação entre o nível de regulação de auditoria e características do setor bancário, foi evidenciado que há mais requerimentos para a atuação dos auditores nos países em que o crédito doméstico provido pelo setor bancário é maior e onde os bancos são mais rentáveis. Por outro lado, há menor regulação nos países em que há maior participação de bancos estatais no sistema financeiro e onde há mais restrições à atuação das instituições bancárias. Não foi confirmada a hipótese de associação positiva entre grau de concentração do setor bancário e o nível de regulação da atividade de auditoria. Por fim, foi constatado que, em 2000, primeiro ano da pesquisa, o nível de regulação era menor que os níveis apurados nos demais exercícios, enquanto que, em 2007, último ano da pesquisa, o nível de regulação é maior que nos anos anteriores, confirmando o que foi encontrado na literatura de que as normas de auditoria tendem a se tornar mais rigorosas com o passar do tempo, na medida em que a demanda por requerimentos mais estritos se acumula, notadamente em momentos de crise de credibilidade.

Detailed Assessment of Observance of Basel Norms in Brazil

The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1974. It provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. The Committee also frames guidelines and standards in different areas - some of the better known among them are the international standards on capital adequacy, the Core Principles for Effective Banking Supervision and the Concordat on cross-border banking supervision. This paper shall try to show the extent to which Brazil has followed and implemented the Basel Norms.