Improving Banking Supervisory Mechanisms
In the OIC Member Countries
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Therefore, requirements of international standards of banking supervision should be
combined with country-specific measures to achieve a more stable banking system. Most
OIC countries have started to construct these macro-prudential standards for banking
supervision. Malaysia and Turkey provide good examples, having adopted international
standards together with measures specific to the structures of their banking systems. We
should note that each country has a banking system with unique characteristics;
therefore, supervision must be designed to achieve global standards accompanied with
country-specific regulatory measures.
 According to the World Bank survey we studied, deposit insurance mechanisms seems to
be the weakest point of the OIC banking system compared to the US and European
banking systems. We have observed that an explicit deposit insurance scheme is not
available in all OIC countries. Deposit insurance should be seen as a necessity for a sound
banking system, as it will improve trust to the system and prevent bank-runs in the
times of stress as well as the amplification of shocks. OIC countries with a deposit
insurance scheme seem to be able to build a system, which mitigates moral hazard
issues.
 Deposit decomposition and deposit insurance: The recent US and European banking
crisis has shown the importance of deposit insurance. The US banking sector has taken
radical action and increased its deposit insurance a great deal. Clearly, for OIC member
states, a coordinating mechanism on deposit insurance seems to be crucial step to be
taken. In the US, the FDIC plays the major role in determining and monitoring deposit
insurance. In Europe, it is less clear how EBA will eventually set up a European deposit
insurance mechanism. In any case, OIC member states should improve the deposit
insurance mechanisms applied in their banking systems. Each member state should take
necessary actions to enhance depositors’ confidence in the member states. In addition,
there are several variants of deposit insurance schemes that can improve the banking
system. For instance, deposit insurance requirements can be differentiated among
various banks depending on the riskiness of banks. Banks with higher risk may need to
contribute more to the deposit insurance premium pool of the country. In other words, a
"risk-based deposit insurance premium" can be implemented in OIC member states. One
example of this deposit insurance scheme was implemented by the Turkish deposit
insurance authority (SDIF). Turkish banks pay different deposit insurance premiums on
the basis of their banking risks. The higher the bank's risk, the higher the deposit
insurance charged for a specific bank. Turkish authorities can share their experience on
the deposit insurance mechanism.
 Most OIC countries have established an autonomous supervision mechanism for their
banking sectors. In terms of independence from political authority and from the
pressures of the actors in the banking sector, OIC countries, on average, are in a
relatively good position compared to the EU-27 and the US. Autonomy and independence
of the supervisory authority should be maintained for a sound banking system.
Experience and tenure of the employees of the supervisory authority are on the same
level as the US and the EU-27. OIC countries with relatively low experience in
supervision will gain expertise as they continue their efforts to adopt international
standards of banking regulation. The establishment of the EBA in 2014 may induce
European Banking to be more autonomous.