FSI Issues Executive Summary of Proportionality in Banking Supervision

The Financial Stability Issued and Executive Summary of Proportionality in Banking Supervision to summarize various proportionality approaches to implementing the Basel III Framework.  Notable in the summary is the reiteration of the principles of proportionality built into the Basel III Framework and most recently elaborated on the Basel Committee on Banking Supervision’s High-level Considerations on Proportionality.

Notably the summary indicates that proportionality provides supervisory authorities with options for adopting simpler standardized approaches and that in some jurisdictions, even the simpler approaches might require further adaptation. 

The summary notes that the Basel Framework is the full set of standards for the oversight of internationally active banks (IABs) in member jurisdictions of the Basel Committee on Banking Supervision (BCBS). This framework includes the Core Principles for Effective Banking Supervision (BCPs) and regulatory (Pillar 1), supervisory (Pillar 2) and disclosure (Pillar 3) standards. Although the BCPs are universally applicable, the remaining elements of the Basel Framework (the three pillars) are the standard for IABs. To accommodate the diversity of banks and banking systems, the BCPs embed the concept of proportionality. Proportionality allows assessments of compliance with the BCPs that are commensurate with the risk profile and systemic importance of a broad spectrum of banks.

This summary makes it clear that national-level regulators have the appropriate tools to tailor regulations more appropriate for smaller, less-complex community based cooperatives such as credit unions.

A copy of the Executive Summary can be viewed here.