Improving Banking Supervisory Mechanisms
In the OIC Member Countries
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4. Banking Sector Supervision in Selected OIC Countries
In this section, supervisory mechanism of the banking sector in selected OIC member countries
is analyzed in a comparative perspective. In the first section, we will describe the core
principles developed by the BIS which basically constitute a benchmark for the ideal
supervisory mechanisms in the world. Finally, we provide a comparison of the current stance
of OIC member countries on the basis of these principles using World Bank Regulation and
Supervision Survey.
4. 1 Core Principles
Banking sector regulation remains to be crucial in the aftermath of the financial crisis of 2008.
Towards the construction of a well-functioning and stable banking system, Basel Committee of
Banking Supervision aims at laying the ground for the most effective regulation and
supervision scheme. In 1997, Basel Committee issued a universal set of core principles, which
are used by countries as a benchmark for assessing the quality of their supervisory systems
and identifying the roadmap to achieve sound supervisory practices. In the light of the
changing landscape of global financial markets and regulations after the 2008 crisis, the
Committee has updated its core principles in 2012. The main tradeoff in designing the best
regulation scheme is to set the bar for supervision high enough while maintaining globally
applicable and flexible standards for the banking system. Core principles for banking sector
supervision has been updated to achieve applicability to a wide range of banking systems
around the world and construct a common ground for the assessment of the quality of the
supervisory practices.
The set of Core Principles are divided into two broad categories:
1) Supervisory powers, responsibilities and functions
2) Prudential regulations and requirements
Supervisory powers, responsibilities and functions
 Responsibilities, objectives and powers
 Independence, accountability, resourcing and legal protection for supervisors
 Cooperation and collaboration
 Permissible activities
 Licensing criteria
 Transfer of significant ownership
 Major acquisitions
 Supervisory approach
 Supervisory techniques and tools
 Supervisory reporting
 Corrective and sanctioning powers of supervisors
 Consolidated supervision
 Home-host relationships
Prudential regulations and requirements
 Corporate governance
 Risk management process
 Capital adequacy