Improving Banking Supervisory Mechanisms
In the OIC Member Countries
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member states would better understand and assess the systemic risk that OIC countries
may encounter. Since, there are some common risk factors, such as increase in global
interest rates which may negatively affect the risks of all OIC banking system, a common
scenario analysis applicable for all of the OIC member states might be useful. IFSB or
SESRIC can study these types of market risk scenarios which can be applicable for other
countries. In addition, many economies in the OIC member states depend on the sale of
crude oil. If the recent decrease in oil prices becomes more sustainable, many of the OIC
member states can be adversely affected. The impact of such scenarios should also be
studied. As a conclusion, regulators need to use these global and local market risk
scenarios to enhance risk-management practice in the banking sector. Controlling loan
growth and monitoring the potentials to avoid asset bubbles are important challenges
for local supervisors; a coordinating effort could be useful.
 Supervisors in OIC countries should also study how to choose banks to be qualified as
Domestic Systemically Important Banks (DSIBs). According to global regulators, there
are various criteria for a bank to be qualified as DSIB. Even though none of the banks in
the OIC member countries was qualified as a Global Systemically Important Bank (GSIB),
domestically important banks in OIC member states should be chosen by the regulators
in the OIC member states. OIC supervisors should develop and announce the selection
criteria for choosing DSIB banks in the OIC member states. Various regulators in
emerging markets (e.g. Bank of India) have declared their rules for choosing their DSIBs.
OIC member states should lay out a framework for selecting DSIBs in each member state.
Therefore, regulators of each member state in the OIC countries need to develop a
criteria set for choosing DSIBs.
- Banking Supervision:
 The structure of banking supervision in OIC member countries is investigated in detail in
Section 5, using the World Bank Regulation and Supervision Survey. Supervision
mechanism is compared to EU-27 and US, which are considered as benchmarks since
these are the countries mostly affected by the 2008 crisis and passed through a
renovation stage in banking supervision. Thus, a comparative analysis of supervision in
OIC member countries will be informative.
 By comparing banking supervision along the dimensions proposed by the World Bank,
we observe that OIC member countries, on average, have achieved the supervision
standards of the benchmark countries with worldwide leading banking and financial
sectors. However, we should also note that over the last three years European banks
have been improving their supervisory power. Therefore, supervisors in OIC member
states should continue their improvement phase over the coming years to keep up with
the recent advances in developed countries.
 One of the most important aspects of banking supervision is the stringency of capital
regulations. OIC member countries are relatively stronger than the EU-27 and the US in
imposing and implementing strict capital requirements for the banking sector; this
allowed them to pass the 2008 crisis with relatively minor economic damages. However,
most OIC member countries are emerging markets and vulnerable to external economic
conditions. Well-functioning supervision practices in member countries should continue
with a broader perspective to include possible volatilities in global financial markets.