Foreign Bank Supervision and Challenges to Emerging Market Supervisors
IMF Working Papers, May 1, 2004
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Bibliographic details
- Authors: In W Song
- Published: May 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451850475.001
Summary
- The increased presence of foreign banks in a country's domestic banking system necessitates the development of effective cross-border prudential supervision where the consolidated supervision is the essential element.
- The paper presents foreign bank supervision in terms of:
- division of responsibilities between the home and host countries,
- consolidated supervision,
- quality of home-country supervision,
- memoranda of understanding (MOUs), and
- "ringfencing" of banks.
- The paper discusses a number of challenges which foreign banks bring to emerging market banking supervisors.
- The paper also provides surveys of country cases.
Major themes and analysis
- Division of responsibilities between home and host countries is a central element in supervising foreign banks operating across borders.
- Consolidated supervision is emphasized as the essential supervisory approach for cross-border banking groups.
- The quality of home-country supervision materially affects the effectiveness of host-country oversight of foreign bank affiliates.
- Memoranda of understanding (MOUs) are discussed as tools to facilitate cooperation and information-sharing between supervisory authorities.
- "Ringfencing" of banks is examined as a supervisory and policy response to cross-border risks.
Challenges to emerging market supervisors (enumerated)
- Increased presence of foreign banks introduces cross-border prudential complexity that requires enhanced supervisory frameworks.
- Host-country supervisors face limitations when home-country supervision quality is weak or when cross-border cooperation is insufficient.
- Practical difficulties arise in implementing consolidated supervision for foreign banking groups operating in multiple jurisdictions.
- The need for formalized cooperation mechanisms (e.g., MOUs) is highlighted to manage supervision, crisis management, and resolution across borders.
- "Ringfencing" measures present trade-offs for host and home supervisors and can complicate consolidated supervisory approaches.
Policy implications and recommendations
- Strengthen consolidated supervision frameworks as an essential element of cross-border prudential oversight.
- Clarify and codify the division of responsibilities between home and host supervisors to reduce supervisory gaps.
- Enhance assessment and monitoring of the quality of home-country supervision when foreign banks operate domestically.
- Use memoranda of understanding (MOUs) and other cooperation agreements to support timely information-sharing and coordinated supervision.
- Consider implications and prudent design of "ringfencing" policies to balance domestic financial stability concerns with cross-border supervisory effectiveness.
Publication and metadata
- Author: In W Song
- Date: May 1, 2004
- Series: IMF Working Papers
- Working Paper No.: 2004/082
- Issue: 082
- Volume: 2004
- Pages: 52
- DOI: https://doi.org/10.5089/9781451850475.001
- Stock No: WPIEA0822004
- ISBN: 9781451850475
- ISSN: 1018-5941
- Subject: Bank supervision, Banking, Consolidated banking supervision, Financial conglomerates, Foreign banks
- Keywords: bank, country, establishment, parent bank, procedure, WP
Source: Foreign Bank Supervision and Challenges to Emerging Market Supervisors — IMF Working Paper by In W Song, May 1, 2004.