Consultative paper on revised "Core principles for effective banking supervision" issued by the Basel Committee

Press release  | 
20 December 2011

The Basel Committee on Banking Supervision today issued for public comment its revised Core principles for effective banking supervision.

The consultative paper updates the Committee's 2006 Core principles for effective banking supervision and the associated Core principles methodology, and merges the two documents into one. The Core Principles have also been re-ordered, highlighting the difference between what supervisors do themselves and what they expect banks to do: Principles 1 to 13 address supervisory powers, responsibilities and functions, focusing on effective risk-based supervision, and the need for early intervention and timely supervisory actions. Principles 14 to 29 cover supervisory expectations of banks, emphasising the importance of good corporate governance and risk management, as well as compliance with supervisory standards.

Among other things, the revision of the Core Principles builds on the lessons of the last financial crisis. The Core Principles have been enhanced to strengthen supervisory practices and risk management. In addition, the revised Core Principles respond to several key trends and developments that emerged during the last few years of market turmoil: the need for greater intensity and resources to deal effectively with systemically important banks; the importance of applying a system-wide, macro perspective to the microprudential supervision of banks to assist in identifying, analysing and taking pre-emptive action to address systemic risk; and the increasing focus on effective crisis management, recovery and resolution measures in reducing both the probability and impact of a bank failure.

Ms Sabine Lautenschläger, Co-chair of the Core Principles Group and Vice-President of the Deutsche Bundesbank, noted that "the revised Core Principles contribute to the broader ongoing effort by the Basel Committee to raise the bar for banking supervision in the post-crisis era". She added that "the Committee has achieved a lot in terms of rule-making over the past five years and this work will be instrumental in firmly entrenching many of the supervisory lessons and regulatory developments since the Core Principles were last revised".

The latest revision ensures the continued relevance of the Core Principles in providing a benchmark for supervisory practices that will withstand the test of time and changing environments. The total number of Core Principles has increased from 25 to 29; 36 new essential and additional criteria have been introduced and another 33 additional criteria have been upgraded to essential criteria that represent minimum baseline requirements for all countries.

The Core Principles are the de facto framework of minimum standards for sound supervisory practices and are universally applicable. The Committee believes that implementation of the revised Core Principles by all countries will be a significant step towards improving financial stability domestically and internationally, and provide a good basis for further development of effective supervisory systems.

"With the advent of various policy measures for addressing both bank-specific and broader systemic risks, the key challenge in this revision of the Core Principles has been to uphold their relevance for different jurisdictions and banking systems," stated Ms Teo Swee Lian, Co-chair of the Core Principles Group and Deputy Managing Director of the Monetary Authority of Singapore. "As highlighted in the paper, a proportionate approach achieves this through advocating risk-based supervision and supervisory expectations that are commensurate with a bank's risk profile and systemic importance."

The revised Core Principles represented the collective efforts between the Basel Committee and other banking supervisors from around the world, as well as the International Monetary Fund and the World Bank.

For information purposes, a document comparing the 2006 assessment methodology with the revised version has also been posted. This document is provided to facilitate a direct comparison between the two versions of assessment criteria.

The Basel Committee welcomes comments on the revised Core Principles. Comments should be submitted by Tuesday 20 March 2012 by email to: Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the Bank for International Settlements's website unless a commenter specifically requests confidential treatment.