The Basel Committee has significantly revised and toughened its “core principles” for effective bank supervision, hoping to lay out clear criteria by which global bodies may judge national practice and home and host supervisors can assess the degree to which banks domiciled in other nations meet the highest prudential criteria. The new standards include a strong emphasis on corporate governance, as well as on resolvability, non-traditional activities and disclosure to promote market discipline. Also in a departure from prior standards, the Basel Committee intends these core principles to focus on outcomes, not the degree to which banks or supervisors comply with procedural requirements. They are designed not to prevent banks from failure – an objective that would increase pressure to govern banks as utilities – but rather to reduce the probability and severity of failure. However, the principles take no stand on whether banks should be backed by taxpayer safety nets beyond deposit insurance, thus making them “too big to fail” in certain national regimes. Intended to create clear criteria for global judgment of supervisory practice and, thus, to improve it, the criteria remain in several respects “proportionate” and/or qualitative, meaning that subjectivity will still play a significant role in external assessments of national bank-supervisory practice. Although designed for banks, these standards are intended also to assess securities and insurance supervisors and, regardless of whether they are ultimately adopted in these sectors, will affect judgments bank and bank-holding company supervisors make about risk in these activities if housed in banking organizations.
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