Small banks are the backbone of local economies but have distinct business models and risk profiles compared to larger banks. Recognising these differences, the Basel Committee on Banking Supervision (BCBS) promotes proportionality in global banking standards, encouraging tailored requirements based on bank size, complexity, and risk profile. The BCBS does not define ‘small banks’ or prescribe tailoring methods, allowing authorities flexibility to develop approaches suited to local circumstances.
This paper explores how six jurisdictions design simplified regulatory regimes for small banks, focusing on eligibility criteria and the proportionality approaches applied to prudential requirements. It also provides policy considerations for authorities aiming to tailor small bank regulatory frameworks to their specific contexts.
To identify small banks eligible for simplified regulatory regimes, authorities may consider using the BCBS’ size, complexity, and risk profile criteria as a foundation, while developing locally relevant indicators to refine each criterion. Prudential requirements should be aligned with applicable eligibility criteria, such as tying exemptions from market risk capital requirements to trading book size limits. Such an approach helps small bank regulatory regimes remain simple, proportional, and resilient, allowing small banks to better serve local communities.
