md2 Flashcards
(24 cards)
Regulations and Supervision of financial institutions
- Supervision and regulation distinguished
- Types of Examination
- Purpose of Supervision and Regulation
- Benefits of Bank supervision
- Supervision and examination of banking Institutions
- Conservator
- Insolvency Proceedings
- Liquidator
involves overseeing the operations of banks and other financial institutions under its jurisdiction. This function ensures that these entities operate in a safe, sound, and stable manner, contributing to the overall financial stability of the country. The BSP exercises regulatory powers as provided by the New Central Bank Act and other relevant laws. It also supervises financial technology and payment systems to promote secure and reliable financial transactions
Supervision and Regulation Function of the Bangko Sentral ng Pilipinas (BSP)
involves monitoring and overseeing financial institutions to ensure they comply with laws, regulations, and standards designed to maintain their soundness and stability. This function is crucial to safeguarding public trust in the financial system.
Supervision Function of the Bangko Sentral ng Pilipinas (BSP)
- Conducting regular on-site examinations and off-site monitoring of banks and non-bank financial institutions.
- Assessing the financial health, risk management practices, and operational integrity of these entities.
- Enforcing corrective measures when institutions violate regulations or show signs of instability.
- Promoting effective corporate governance within financial institutions to ensure responsible management and ethical practices.
- By supervising these institutions, the BSP helps preserve a stable financial environment, which is essential for economic growth
Supervision function of BSP includes
involves creating and implementing rules, policies, and guidelines that govern the operations of banks and other financial institutions. This ensures that these entities operate in a safe, sound, and transparent manner, aligned with the best interests of depositors, investors, and the overall economy.
Regulation Function of the Bangko Sentral ng Pilipinas (BSP)
- Setting prudential regulations: Establishing capital adequacy requirements, liquidity standards, and risk management frameworks to promote financial stability.
- Issuing guidelines: Providing policies on lending practices, anti-money laundering, cybersecurity, and other critical areas.
- Licensing and accreditation: Granting licenses to operate and accrediting financial institutions that meet regulatory standards.
- Enforcing compliance: Monitoring adherence to regulations and imposing sanctions on institutions that fail to comply.
- Through these regulatory measures, the BSP ensures a resilient and well-functioning financial system.
Regulation Function of BSP
Key Purposes of SUpervision and Regulation Functions
designed to ensure the stability and integrity of the financial system
- Financial Stability: To ensure that banks and financial institutions operate safely, soundly, and in a way that contributes to the overall stability of the financial system.
- Protection of Depositors and Investors: To safeguard the interests of depositors, investors, and the public by ensuring that financial institutions comply with laws and regulations.
- Risk Management: To minimize risks within the financial system by implementing robust regulatory and supervisory frameworks.
- Fair and Ethical Practices: To promote responsible and ethical behavior in financial institutions through effective governance and regulatory guidelines.
- Development of a Resilient Financial Sector: To foster a financial system that supports economic growth and development while remaining resilient to external and internal shocks.
two main types of examinations
- Regular Examination:
- Special Examination:
This is conducted annually, with an interval of 12 months from the last examination. It involves a comprehensive review of the institution’s operations, financial health, and compliance with laws and regulations.
Regular Examination
This is conducted as needed, often in response to specific concerns or risks. It may focus on particular areas of an institution’s operations, such as solvency, liquidity, or compliance with specific regulations.
Special Examination
Areas For Examination
- Asset Quality: Evaluating the institution’s loan portfolio, investments, and other assets to identify risks of default or impairment.
- Liquidity Position: Assessing the institution’s ability to meet its financial obligations and maintain sufficient liquid assets.
- Capital Adequacy: Reviewing whether the institution holds sufficient capital to absorb potential losses and ensure long-term viability.
- Corporate Governance: Examining the effectiveness of the institution’s leadership, policies, and internal controls to promote ethical and responsible management.
- Risk Management Practices: Evaluating how well the institution identifies, measures, monitors, and controls risks, including credit, market, operational, and compliance risks.
- Compliance with Laws and Regulations: Checking adherence to legal and regulatory requirements to prevent violations and protect stakeholder interests.
- Earnings Performance: Analyzing profitability trends and income sources to determine financial sustainability.
- Technology and Cybersecurity: Examining systems, processes, and safeguards in place to protect against data breaches and ensure operational resilience.
CAMELS rating system is a supervisory tool used to assess the overall condition of financial institutions. It evaluates six key components:
Turned into Supervisory Assessment Framewrok (SAFr) July 1,2020
- Focuses on the systemic importance and risk profile of financial instruction to guide supervisory action.
- Capital adequacy
- Asset quality
- Management capability
- Earnings
- Liquidity
- Sensitivity to market risk.
is a risk-based supervisory framework designed to assess financial institutions under its jurisdiction. It focuses on ensuring that supervisory efforts are proportionate to the systemic importance and risk profile of each institution.
Supervisory Assessment Framework (SAFr) of the Bangko Sentral ng Pilipinas (BSP)
Key elements of SAFr of BSP
- Impact Assessment: Evaluates the systemic importance of a financial institution and the potential consequences of its failure on the financial system.
- Risk Assessment: Assesses the institution’s resilience to adverse conditions, considering factors like financial health, governance, and risk management practices.
- Supervisory Intensity: Determines the level of supervisory attention and actions required based on the institution’s impact and risk profile.
The SAFr aims to promote a forward-looking and dynamic approach to supervision, ensuring that resources are allocated effectively to address risks and maintain financial stability.
The conservator is tasked with taking charge of the bank’s assets, liabilities, and management to restore its viability. The conservator has the power to reorganize the bank, reduce its liabilities, and take other necessary actions to protect the bank’s stakeholders
New Central Bank Act. RA No. 7653
Monetary Board of the BSP has the authority to appoint a conservator for a bank if it finds that the bank is in a state of insolvency or liquidity problems.
Conservator/conservatorship
Key aspects of conservatorship in PH
- Management Takeover: The conservator assumes control over the institution’s operations, assets, and liabilities.
- Rehabilitation Efforts: The conservator implements measures to restore the institution’s financial health and operational viability.
- Regulatory Oversight: The conservator operates under the supervision of the BSP or other relevant regulatory bodies, ensuring compliance with laws and regulations.
Conservatorship is applied as a last resort to prevent the collapse of a financial institution and mitigate risk to the broader financial system.
Key responsibilities of a conservator include:
- Managing operations: Overseeing the day-to-day activities of the institution to restore stability.
- Assessing financial health: Evaluating the institution’s assets, liabilities, and overall financial condition.
- Implementing corrective measures: Taking steps such as restructuring, asset sales, or operational changes to address issues.
- Ensuring compliance: Making sure the institution adheres to regulatory requirements and laws.
duties and responsibilities of a conservator of a financial institution
- Management and Oversight: The conservator takes charge of the assets, liabilities, and management of the financial institution. Their primary goal is to restore the institution’s viability and ensure it can meet its obligations.
- Rehabilitation: The conservator is tasked with implementing measures to rehabilitate the financial institution. This may include reorganizing the institution, reducing liabilities, or taking other necessary actions to stabilize its financial condition.
- Protection of Stakeholders: The conservator acts in the best interest of depositors, creditors, and other stakeholders. They ensure that the institution’s operations are aligned with protecting these interests.
- Coordination with Regulatory Authorities: The conservator works closely with the Bangko Sentral ng Pilipinas (BSP) and other relevant regulatory bodies to ensure compliance with legal and regulatory requirements.
- Reporting: The conservator is required to provide regular updates and reports to the BSP on the financial institution’s status and the progress of rehabilitation efforts.
What is insolvency?
Inability to Pay Liabilities:
Insufficient Realizable Assets
Probable Losses to Stakeholders
Insolvency Proceedings
Authority to Liquidate
Appointment of a Receiver
Liquidation Process
Court Supervision
Final Report
refers to the process where a financial institution, deemed insolvent or unable to operate safely, is placed under the control of a receiver. The receiver is typically the Philippine Deposit Insurance Corporation (PDIC), as mandated by law. The primary goal of receivership is to protect the interests of depositors and creditors while ensuring an orderly resolution of the bank’s financial issues.
Bank receivership
Key features of bank receivership include:
- Appointment by the Monetary Board: The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) orders the closure of the bank and appoints the PDIC as the receiver.
- Asset Management: The receiver takes control of the bank’s assets, records, and operations to assess its financial condition.
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Claims Settlement: The receiver evaluates
and processes claims from depositors and creditors, ensuring compliance with legal priorities. - Preparation for Liquidation: If the bank cannot be rehabilitated, the receiver initiates the liquidation process to settle liabilities and distribute remaining assets.
Features of Liquidation
- Legal Framework
- Appointed Receiver
- Court Supervision
- Asset Conversion
- Debt Settlement
- Transparency and Accountability
- Final Distribution
Liquidation process
- Closure and Appointment of Receiver
- Filing of Petition for Assistance in Liquidation (PAL)
- Inventory of Assets and Liabilities
- Notice to Creditors
- Master Liquidation Plan
- Conversion of Assets to Cash
- Settlement of Claims
- Final Distribution and Reporting
