Conducting a Supervisory Self-Assessment - Practical Application

April 2001

Introduction

1. The objective of the self-assessment is to produce a comprehensive, credible and action-oriented overview of the national banking supervisory system based on the Basel Core Principles for Effective Banking Supervision and the Core Principles Methodology. In conducting a self-assessment, supervisory authorities seek to benchmark their own supervisory system against the Core Principles, with the ultimate goal of enhancing the effectiveness of supervision. The process is not necessarily a one-time event and supervisory authorities may choose to conduct self-assessments on a periodic basis.

2. This paper presents a framework that banking supervisory authorities can use to conduct self-assessments of their supervisory systems. The framework is derived in large part from the insights gained from self-assessments that have been conducted by a number of countries since the publication by the Basel Committee of its Core Principles and Core Principles Methodology.

3. The Core Principles and Core Principles Methodology set a high standard of practice. Therefore, it is to be expected that any country conducting a rigorous and objective self-assessment will find some gaps and shortcomings in its banking supervisory system. In the final analysis, the assessors must form a judgement as to whether the supervisory authority has the capacity to supervise adequately the banking sector, and whether the supervisory methods used by the supervisory authority contribute effectively to that goal. If they do not, it is incumbent on the supervisory authority to take action. A programme of reform should also include any necessary measures that would have to be taken by other authorities (e.g., legislators, regulators).

4. The self-assessment framework is designed to be suitable for all types of jurisdictions, irrespective of the degree of development of the banking system or the nature of the supervisory system. The framework places particular emphasis on the practical aspects of self-assessment, highlighting specific questions that need to be asked and obstacles that may be encountered along the way. It employs a multi-phase approach, with a view to conducting the most comprehensive analysis possible. Finally, it suggests the use of a template in which the different steps of the assessment are summarised as set out in the annex of the Core Principles Methodology document.

5. The self-assessment is a time consuming and resource intensive process; however, the benefits are numerous. Among the most important of these is the added value that such an exercise will provide to an external assessment. It lays the groundwork for supervisory authorities to begin taking steps towards more effective supervision, rather than waiting for an external assessment to take place. It will lead to more productive discussions with the external assessors, as the detailed criteria will have already been reviewed internally. It can also assist the external assessors by providing background material for their work.

6. This document consists of three sections:

I the self-assessment strategy;

II the four phases of self-assessment (review of the legal framework, review of the practical application of supervisory policies and procedures, assessment of compliance with the Core Principles, and the drawing up of an action plan to address identified weaknesses);

III the self-assessment report.