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. Similarly, the Basel Framework allows for some proportionality by providing supervisory authorities with options for adopting simpler standardised approaches. In some jurisdictions, even the simpler approaches under the Basel Framework might require further adaptation. To support those authorities seeking to implement proportionality, the BCBS published its high-level considerations on proportionality. The considerations are voluntary and do not alter existing BCBS standards, guidelines or sound practices.
Overarching considerations in applying proportionality
Banks vary based on size, their international activities, level of sophistication and ownership structure. The institutional characteristics of supervisory authorities can also differ in legal powers, organisational structure, resource availability and independence. These differences can influence the proportionality approaches taken. Regardless of these variations, all proportionality approaches should remain consistent with the BCPs, foster financial system soundness, safeguard financial stability and limit regulatory arbitrage across and within jurisdictions.
In designing proportionality approaches, one of the most fundamental issues involves segmentation: that is, how to differentiate among banks for purposes of applying tailored requirements. The table below sets out issues to consider in establishing a segmentation structure.
This Executive Summary and related tutorials are also available in FSI Connect, the online learning tool of the Bank for International Settlements.