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         4. Supervisory Information Needs
         










 

Enhancing Bank Transparency

4. Supervisory Information Needs

  1. In addition to having a role in establishing adequate disclosure standards, supervisors are also users of information provided by banks. Effective banking supervision requires collection and analysis of information to assess the condition, performance and risk profile of individual banks and the condition of the banking system. While section 2 provided an elaboration of the role of information in facilitating market discipline, this section discusses the role of information in prudential supervision.

  2. Supervisors receive information in a variety of ways. First, supervisors are key users of information that is publicly disclosed and contained in annual reports, analysts' ratings and assessments. Second, in most countries, the supervisory authority has the power to set regular reporting requirements, and this information is routinely sent to supervisors. This information is important to supervisors in enhancing publicly disclosed information, due to its timeliness, proprietary character or adaptation to specific supervisory information needs. Further, supervisory authorities collect data during the on-site examination process or external audit process. This information is used alongside publicly disclosed information and information that has been reported to the supervisor to obtain a comprehensive and forward-looking picture of the bank's condition, operations, risk profile and risk management activities. Supervisors may also gather information by conducting targeted examinations, audits or surveys. Finally, supervisors also have access to the information that the bank itself possesses.

  3. Supervisors use different combinations of these methods for gathering information, depending on the nature of the data, the number of institutions under review, their size and complexity, and the characteristics of the market and the regulatory framework. Regardless of the method used and the mix among them, it is essential that banking supervisors obtain information that enables them to detect potential problems at an early stage and identify trends not only for particular institutions, but also for the banking system as a whole. Generally this will involve some form of reporting procedure.

  4. While this document recommends that supervisors proactively encourage improvements in public disclosure standards, supervisors' first priority in countries with less developed financial markets must be to establish a comprehensive supervisory reporting system. For banks with little or no reliance on active and competitive markets, market discipline can only play a very limited role.

  5. Banking supervisors use supervisory reports in a variety of ways. First, they are used to check banks' adherence to prudential requirements, such as capital adequacy and large exposures, and to identify potential problems. To enable effective off-site supervision, banking supervisors must receive financial information at regular intervals, and this information must be verified periodically through on-site examinations or external audits. Information of interest to supervisors may, of course, include public information, but regular supervisory reporting will typically encompass information that is not publicly disclosed, e.g., more detailed and timely data and proprietary information. Banks should be required to make information available on a periodic basis for review by supervisors, and inform supervisors of important matters in a timely manner. Supervisory reporting systems should provide for early detection in the intervals between on-site examinations, external audits, or supervisory visitations, enabling supervisors to take prompt action before problems become more serious.

  6. To minimise additional costs on the industry, supervisors should, where appropriate, use information that banks generate for internal purposes. Moreover, there should be as much consistency as possible between information obtained for reporting purposes and data that institutions must already compile to comply with other supervisory or public disclosure requirements. Finally, supervisors should assess their information needs periodically to determine whether certain reporting requirements can be eliminated.

  7. A minimum level of harmonisation of supervisory information across countries, taking account of what data is already produced for internal risk management purposes and public disclosure requirements, would also help limit the reporting burden for the banking industry. To that end, the Basle Committee, jointly with IOSCO, issued in 1995 a Framework for Supervisory Information about the Derivatives Activities of Banks and Securities Firms, including a common minimum framework of data elements on exchange-traded and OTC derivatives to which supervisors should have access. In 1998, the Framework was updated to keep pace with financial innovation and progress in risk management practices for trading and derivatives activities, particularly with regard to market risk.

  8. The characteristics and types of information addressed in the following sections of this report, while often discussed in the context of public disclosure, are also very important for supervisory purposes. These characteristics and types of information are necessary to assess and understand a bank's financial condition and performance, risk profile, risk management practices, and corporate governance. Therefore, supervisory information should reflect the qualitative and quantitative attributes discussed in the following sections.

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