risk management presentation september 24 2012

7/28/2019 Risk Management Presentation September 24 2012

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International Association of Risk and ComplianceProfessionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USATel: 202-449-9750www.risk-compliance-association.com

Top 10 risk and compliance management related news storiesand world events that (for better or for worse) shaped the week's

agenda, and what is next

George LekatisPresident of the IARCP

Dear Member,

As you can read at Number 4of our list, economic activityhascontinued to expand at a moderate pace in recent months.

Growthin employment has been slow, and the unemployment rateremains elevated.

Household spendinghas continued to advance, but growth in businessfixed investment appears to have slowed.

The housing sectorhas shown some further signs of improvement, albeit

from a depressed level.Inflationhas been subdued, although the prices of some key commoditieshave increased recently.

Longer-term inflationexpectations have remained stable.

But

Economic growth might not be strong enough to generate sustainedimprovement in labor market conditions.

Strains in global financial marketscontinue to pose significant downsiderisks to the economic outlook.

International Association of Risk and Compliance Professionals (I ARCP)www.risk-compliance-association.com
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To support a stronger economic recovery and to help ensure thatinflation, over time, is at the rate most consistent with its dual mandate,the Federal Open Market Committeehasagreed to increase policyaccommodation by purchasing additional agency mortgage-backedsecurities at a pace of $40 billion per month.

The Committee also will continue through the end of the year its programtoextend the average maturity of its holdings of securitiesas announcedin June, and it is maintaining its existing policy of reinvesting principalpayments from its holdings of agency debt and agency mortgage-backedsecurities in agency mortgage-backed securities.

These actions, which together will increase the Committeesholdings oflonger-term securities by about $85 billion each month through the end ofthe year, should put downward pressure on longer-term interest rates,

support mortgage markets, and help to make broader financial conditionsmore accommodative.

The Committee will closely monitor incoming information on economicand financial developments in coming months.

If the outlook for the labor market does not improve substantially, theCommittee will continue its purchasesof agency mortgage-backedsecurities, undertake additional asset purchases, and employ its otherpolicy tools as appropriate until such improvement is achieved in a

context of price stability.

Welcome to the Top 10 list.

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Bank for International SettlementsCore principles for effective banking

supervision

September 2012

The Basel Committee on Banking Supervisionhas completed its review of the October 2006Core principles for effective bankingsupervision and the associated Core principlesmethodology.

The revised Core Principles were endorsed bybanking supervisors at the 17th I nternational

Conference of Banking Supervisors held in Istanbul, Turkey, on 13-14September 2012.

Stress Testing ModelSymposium

Federal Reserve Bank of Boston

Address by Deputy Governor MatthewElderfield, to the I rish Funds IndustryAssociation



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2012 Monetary Policy Releases

Information received since the FederalOpen Market Committee met inAugust suggests that economic activityhas continued to expand at a moderatepace in recent months.

Growth in employment has been slow,and the unemployment rate remains elevated.

Economic Activity, Prices, and Monetary Policy

Speech at a Meeting with Business Leaders in YamaguchiRyuzo Miyao. Member of the Policy Board

The U.S. Economic Outlook and Implications forLatin America

Dennis P. LockhartPresident and Chief Executive OfficerFederal Reserve Bank of AtlantaLatin American Chamber of Commerce and the World

Affairs Council



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Basel ii / iii in Russia

The Bank of Russia considers it necessary to create legislativefundamentals in Russia for introducing all the standards of bankingregulation and banking supervision established by the Basel Committeeon Banking Supervision (BCBS).

These include legislation empowering the Bank of Russia to setrequirements for credit institutionscorporate governance, risk and capitalmanagement systems, to exercise consolidated supervision, to useprofessional judgment in supervisory practices, and also to define

disciplinary action against members of executive bodies and boards ofdirectors (supervisory boards) for faults in the activity of their creditinstitutions.

The Importance of StrongRisk Management: Insights

From The ExaminationWorld

By Jason C. Schemmel, Community and Regional supervisory examinerwith the Federal Reserve Bank of Richmond



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NUMBER 1

Bank for International SettlementsBIS, Core principles for effective banking

supervision

September 2012

The Basel Committee on Banking Supervisionhas completed its review of the October 2006Core principles for effective bankingsupervision and the associated Core principlesmethodology.

The revised Core Principles wereendorsed bybanking supervisors at the 17th I nternational

Conference of Banking Supervisors held in Istanbul, Turkey, on 13-14September 2012.

Both the existing Core Principles and the associated assessmentmethodology have served their purpose well in terms of helping countriesto assess their supervisory systems and identify areas for improvement.

While conscious efforts were made to maintain continuity andcomparability to the extent possible, the revised document combines theCore Principles and the assessment methodology into a singlecomprehensive document.

The revised set of twenty-nine Core Principleshas also been reorganisedto foster their implementation through a more logical structure,highlighting the difference between what supervisors do and what theyexpect banks to do:

Principles 1 to 13 address supervisory powers, responsibilities andfunctions, focusing on effective risk-based supervision, and the need forearly intervention and timely supervisory actions.

Principles 14 to 29 cover supervisory expectations of banks, emphasisingthe importance of good corporate governance and risk management, aswell as compliance with supervisory standards.



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Important enhancementshave been introduced into the individual CorePrinciples, particularly in those areas that are necessary to strengthensupervisory practices and risk management.

As a result, certain "additional criteria" have been upgraded to "essential

criteria", while new assessment criteria were warranted in other instances.Close attention was given to addressing many of the significant riskmanagement weaknesses and other vulnerabilities highlighted in thefinancial crisis.

In addition, the review has taken account of several key trends anddevelopments that emerged during the last few years of market turmoil:

- the need for greater supervisory intensityand adequate resourcestodeal effectively with systemically important banks;

- the importance of applying a system-wide, macro perspective to themicroprudential supervision of banksto assist in identifying,analysing and taking pre-emptive action to address systemic risk;and

- the increasing focus on effective crisis management, recovery andresolution measures in reducing both the probability and impact of abank failure.

The Committee has sought to give appropriate emphasis to theseemerging issues by embedding them into the Core Principles, asappropriate, and including specific references under each relevantPrinciple.

In addition, sound corporate governance underpins effective riskmanagement and public confidence in individual banks and the bankingsystem.

Given fundamental deficiencies in banks' corporate governance that wereexposed during the crisis, a new Core Principle on corporate governance

has been added by bringing together existing corporate governancecriteria in the assessment methodology and giving greater emphasis tosound corporate governance practices.



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Similarly, the Committee reiterated the key role of robust marketdiscipline in fostering a safe and sound banking system by expanding anexisting Core Principle into two new ones dedicated respectively togreater public disclosure and transparency, and enhanced financialreporting and external audit.

As a result of the Committee's review, the number of Core Principles hasincreased from 25 to 29.

There are a total of 39 new assessment criteria, comprising 34 newessential criteria and 5 new additional criteria.

In addition, 34 additional criteria from the existing assessmentmethodology have been upgraded to essential criteria that representminimum baseline requirements for all countries.

A consultative version of the revised Core Principles was issued for publicconsultation in December 2011.

The Committee appreciates the constructive comments received andthanks those who have taken the time and effort to express their views onthe consultative document.



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Core Principles for Effective Banking Supervision (The BaselCore Principles)Executive summary

1.The Core Principles for Effective Banking Supervision (CorePrinciples) are thede facto minimum standard for sound prudentialregulation and supervision of banks and banking systems.

Originally issued by the Basel Committee on Banking Supervision (theCommittee) in 1997, they are used by countries as a benchmark forassessing the quality of their supervisory systems and for identifyingfuture work to achieve a baseline level of sound supervisory practices.

The Core Principles are alsoused by the International Monetary Fund

(IMF) and the World Bank, in the context of the Financial SectorAssessment Programme (FSAP), to assess the effectiveness of countriesbanking supervisory systems and practices.

2.The Core Principles were last revised by the Committee in October2006in cooperation with supervisors around the world.

In its October 2010 Report to the G20 on response to the financial crisis,the Committee announced its plan to review the Core Principles as part ofits ongoing work to strengthen supervisory practices worldwide.

3.In March 2011, the Core Principles Group was mandated by theCommittee to review and update the Core Principles.

The Committees mandate was to conduct the review taking into accountsignificant developments in the global financial markets and regulatorylandscape since October 2006, including post-crisis lessons for promotingsound supervisory systems.

The intent was to ensure the continued relevance of the Core Principlesfor promoting effective banking supervision in all countries over time andchanging environments.



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4.In conducting the review, the Committee has sought to achieve theright balance in raising the bar for sound supervision while retaining theCore Principles as a flexible, globally applicable standard.

By reinforcing the proportionality concept, the revised Core Principles

and their assessment criteria accommodate a diverse range of bankingsystems.

The proportionate approach also allows assessments of compliance withthe Core Principles that are commensurate with the risk profileandsystemic importance of a broad spectrum of banks (from largeinternationally active banks to small, non-complex deposit-takinginstitutions).

5.Both the existing Core Principles and the associated Core PrinciplesMethodology (assessment methodology) have served their purpose well

in terms of helping countries to assess their supervisory systems andidentify areas for improvement.

While conscious efforts were made to maintain continuity andcomparability as far as possible, the Committee has merged the CorePrinciples and the assessment methodology into a single comprehensivedocument.

Therevised set of twenty-nine Core Principleshave also been reorganised

to foster their implementation through a more logical structure startingwith supervisory powers, responsibilities and functions, and followed bysupervisory expectations of banks, emphasising the importance of goodcorporate governance and risk management, as well as compliance withsupervisory standards.

6.Important enhancements have been introduced into the individualCore Principles, particularly in those areas that are necessary tostrengthen supervisory practices and risk management.

Various additional criteria have been upgraded to essential criteria as aresult, while new assessment criteria were warranted in other instances.



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Close attention was given to addressing many of the significant riskmanagement weaknesses and other vulnerabilities highlighted in the lastcrisis.

In addition, the review has taken account ofseveral key trends anddevelopments that emerged during the last few years of market turmoil:

- the need forgreater intensity and resourcesto deal effectively withsystemically important banks;

- the importance of applying a system-wide, macro perspectiveto themicroprudential supervision of banks to assist in identifying,analysing and taking pre-emptive action to address systemic risk;

- and the increasing focus on effective crisis management, recoveryand resolution measures in reducing both the probability and impact

of a bank failure.

The Committee has sought to give appropriate emphasis to theseemerging issues by embedding them into the Core Principles, asappropriate, and including specific references under each relevantPrinciple.

7.In addition, sound corporate governanceunderpins effective riskmanagement and public confidence in individual banks and the bankingsystem.

Given fundamental deficiencies in bankscorporate governance that wereexposed in the last crisis, a new Core Principle on corporate governancehas been added in this review by bringing together existing corporategovernance criteria in the assessment methodology and giving greateremphasis to sound corporate governance practices.

Similarly, the Committee reiterated the key role of robust marketdiscipline in fostering a safe and sound banking system by expanding anexisting Core Principle into two new ones dedicated respectively togreater public disclosure and transparency, and enhanced financialreporting and external audit.

8.At present, the grading of compliance with the Core Principles is basedsolely on the essential criteria.



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In conducting its review, the Committee has sought to balance theobjectives of raising the bar for banking supervision (incorporating thelessons learned from the crisis and other significant regulatorydevelopments since the Core Principles were last revised in 2006) againstthe need to maintain the universal applicability of the Core Principles andthe need for continuity and comparability.

By raising the bar, the practical application of the Core Principles shouldimprove banking supervision worldwide.

12.The revised Core Principles strengthen the requirements forsupervisors, the approaches to supervision and supervisorsexpectationsof banks.

This is achieved through a greater focus on effective risk-basedsupervision and the need for early intervention and timely supervisoryactions.

Supervisors should assess the risk profile of banks, in terms of the risksthey run, the efficacy of their risk management and the risks they pose tothe banking and financial systems.

This risk-based process targets supervisory resources where they can beutilised to the best effect, focusing on outcomes as well as processes,

moving beyond passive assessment of compliance with rules.

13.The Core Principles set out the powers that supervisors should have inorder to address safety and soundness concerns.

It is equally crucial that supervisors use these powers once weaknesses ordeficiencies are identified.

Adopting a forward-looking approach to supervision through earlyintervention can prevent an identified weakness from developing into athreat to safety and soundness.



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This is particularly true for highly complex and bank-specific issues (egliquidity risk) where effective supervisory actions must be tailored to abanks individual circumstances.

14. In its efforts to strengthen, reinforce and refocus the Core Principles,the Committee has nonetheless remained mindful of their underlyingpurpose and use.

The Committees intention is to ensure the continued relevance of theCore Principles in providing a benchmark for supervisory practices thatwill withstand the test of time and changing environments.

For this reason, this revision of the Core Principles builds upon thepreceding versions to ensure continuity and comparability as far as

possible.15. In recognition of the universal applicability of the Core Principles, theCommittee conducted its review in close cooperation with members of theBasel Consultative Group which comprises representatives from bothCommittee and non-Committee member countries and regional groups ofbanking supervisors, as well as the IMF, the World Bank and the IslamicFinancial Services Board.

The Committee consulted the industry and public before finalising the

text.

General approach

16.The first Core Principle sets out the promotion of safety andsoundness of banks and the banking system as the primary objective forbanking supervision.

Jurisdictions may assign other responsibilities to the banking supervisor

provided they do not conflict with this primary objective.6 I t should not be an objective of banking supervision to prevent bankfailures.



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Approach toward emerging trends and developments

(i) Systemically important banks (SIBs)

19. In the aftermath of the crisis, much attention has been focused onSIBs, and the regulations and supervisory powers needed to deal withthem effectively.

Consideration was given by the Committee to including a new CorePrinciple to cover SIBs.

However, it was concluded that SIBs, which require greater intensity ofsupervision and hence resources, represent one end of the supervisoryspectrum of banks.

Each Core Principle applies to the supervision of all banks.

The expectations on, and of, supervisors will need to be of a higher orderfor SIBs, commensurate with the risk profile and systemic importance ofthese banks.

Therefore, it is unnecessary to include a specific stand-alone CorePrinciple for SIBs.

(ii) Macroprudential issues and systemic risks

20. The recent crisis highlighted the interface between, and thecomplementary nature of, the macroprudential and microprudentialelements of effective supervision.

In their application of a risk-based supervisory approach, supervisors andother authorities need to assess risk in a broader context than that of thebalance sheet of individual banks.

For example, the prevailing macroeconomic environment, businesstrends, and the build-up and concentration of risk across the banking



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sector and, indeed, outside of it, inevitably impact the risk exposure ofindividual banks.

Bank-specific supervision should therefore consider this macroperspective.

Individual bank data, where appropriate, data at sector level andaggregate trend data collected by supervisors should be incorporated intothe deliberations of authorities relevant for financial stability purposes(whether part of, or separate from, the supervisor) to assist inidentification and analysis of systemic risk.

The relevant authorities should have the ability to take pre-emptive actionto address systemic risks.

Supervisors should have access to relevant financial stability analyses orassessments conducted by other authorities that affect the bankingsystem.

21.This broad financial system perspective is integral to many of the CorePrinciples. For this reason, the Committee has not included a specificstand-alone Core Principle on macroprudential issues.

22.In supervising an individual bank which is part of a corporate group, it

is essential that supervisors consider the bank and its risk profile from anumber of perspectives:on a solo basis (but with both a micro and macrofocus as discussed above); on a consolidated basis (in the sense ofsupervising the bank as a unit together with the other entities within thebanking group) and on a group-wide basis (taking into account thepotential risks to the bank posed by other group entities outside of thebanking group).

Group entities(whether within or outside the banking group) may be asource of strength but they may also be a source of weakness capable ofadversely affecting the financial condition, reputation and overall safetyand soundness of the bank.



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The Core Principles include a specific Core Principle on the consolidatedsupervision of banking groups, but they also note the importance ofparent companies and other non-banking group entities in anyassessment of the risks run by a bank or banking group.

This supervisoryrisk perimeter extends beyond accountingconsolidation concepts.

In the discharge of their functions, supervisors must observe a broadcanvas of risk, whether arising from within an individual bank, from itsassociated entities or from the prevailing macro financial environment.

23. Supervisors should also remain alert to the movement, or build-up, offinancial activities outside the regulated banking sector (the development

ofshadowbanking structures) and the potential risks this may create.

Data or information on this should also be shared with any otherauthorities relevant for financial stability purposes.

(iii) Crisis management, recovery and resolution

24.Although it is not a supervisors role to prevent bank failures,supervisory oversight is designed to reduce both the probability andimpact of such failures.

Banks will, from time to time, run into difficulties, and to minimise theadverse impact both on the troubled bank and on the banking andfinancial sectors as a whole, effective crisis preparation and management,and orderly resolution frameworks and measures are required.

25. Such measures may be viewed from two perspectives:

(i) The measures to be adopted by supervisory and other authorities

(including developing resolution plans and in terms of informationsharing and cooperation with other authorities, both domestic andcross-border, to coordinate an orderly restructuring or resolution of atroubled bank); and



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(ii) Those to be adopted by banks (including contingency funding plansand recovery plans) which should be subject to critical assessment bysupervisors as part of their ongoing supervision.

26. To reflect, and to emphasise, the importance of crisis management,recovery and resolution measures, certain Core Principles include specificreference to the maintenance and assessment of contingencyarrangements.

The existing Core Principle on home-host relationships has also beenstrengthened to require cooperation and coordination between home andhost supervisors on crisis management and resolution for cross-borderbanks.

(iv) Corporate governance, disclosure and transparency27.Corporate governance shortcomings in banks, examples of whichwere observed during the crisis, can have potentially seriousconsequences both for the bank concerned and, in some cases, for thefinancial system as a whole.

A new Core Principle, focused on effective corporate governance as anessential element in the safe and sound functioning of banks, hastherefore been included in this revision.

The new Principle brings together existing corporate governance criteriain the assessment methodology and gives greater emphasis to soundcorporate governance practices.

28.Similarly, the crisis served to underline the importance of disclosureand transparency in maintaining confidence in banks by allowing marketparticipants to understand better a banks risk profile and thereby reducemarket uncertainties about the banks financial strength.

In recognition of this, a new Core Principle has been added to providemore direction on supervisory practices in this area.



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Structure and assessment of Core PrinciplesStructure

29.The preceding versions of the Core Principles were accompanied by a

separate assessment methodology that set out the criteria to be used togauge compliance with the Core Principles.

In this revision, the assessment methodology has been merged into asingle document with the Core Principles reflecting the essentialinterdependence of Core Principles and Assessment Criteria and theircommon usage.

The Core Principles have also been reorganised: Principles 1-13 addresssupervisory powers, responsibilities and functions, and Principles 14-29

cover supervisory expectations of banks, emphasising the importance ofgood corporate governance and risk management, as well as compliancewith supervisory standards.

This re-ordering highlights the difference between what supervisors dothemselves and what they expect banks to do. For comparability with thepreceding version, a mapping table is provided in Annex 1.

Assessment

30.The Core Principles establish a level of sound supervisory practicethat can be used as a benchmark by supervisors to assess the quality oftheir supervisory systems.

They are also used by the IMF and the World Bank, in the context of theFinancial Sector Assessment Programme (FSAP), to assess theeffectiveness of countriesbanking supervisory systems and practices.

31.This revision of the Core Principles retains the previous practice of

including both essential criteria and additional criteria as part of theassessment methodology.



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Essential criteria set out minimum baseline requirements for soundsupervisory practices and are of universal applicability to all countries.

An assessment of a country against the essential criteria must, however,recognise that its supervisory practices should be commensurate with therisk profile and systemic importance of the banks being supervised.

In other words, the assessment must consider the context in which thesupervisory practices are applied.

The concept of proportionality underpins all assessment criteria even if itis not always directly referenced.

32.Effective banking supervisory practices are not static.

They evolve over time as lessons are learned and banking businesscontinues to develop and expand.

Supervisors are often swift to encourage banks to adopt best practiceand supervisors should demonstrablypractice what they preach interms of seeking to move continually towards the highest supervisorystandards.

To reinforce this aspiration, the additional criteria in the Core Principles

set out supervisory practices that exceed current baseline expectationsbut which will contribute to the robustness of individual supervisoryframeworks.

As supervisory practices evolve, it is expected that upon each revision ofthe Core Principles, a number of additional criteria will migrate tobecome essential criteria as expectations on baseline standards change.

The use of essential criteria and additional criteria will, in this sense,

contribute to the continuing relevance of the Core Principles over time.

33.In the past, countries were graded only against the essential criteria,although they could volunteer to be assessed against the additional



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Third, assessments will inevitably be country-specific and time -dependent to varying degrees.

Therefore, the description provided for each Core Principle and thequalitative commentary accompanying the grading for each CorePrinciple should be reviewed in order to gain an understanding of a

jurisdictionsapproach to the specific aspect under consideration and theneed for any improvements. Seeking to compare countries by a simplereference to the number ofCompliant versusNon-Compliant gradesthey receive is unlikely to be informative.

36.From a broader perspective, effective banking supervision isdependent on a number of external elements, or preconditions, whichmay not be within the direct jurisdiction of supervisors.

Thus, in respect of grading, the assessment of preconditions will remainqualitative and distinct from the assessment (and grading) of compliancewith the Core Principles.

37.Core Principle 29 dealing with the Abuse of Financial Servicesincludes, among other things, supervision of banksanti-moneylaundering/ combating the financing of terrorism (AML/ CFT) controls.

The Committee recognises that assessments against this Core Principle

will inevitably, for some countries, involve a degree of duplication withthe mutual evaluation process of the Financial Action Task Force(FATF).

To address this, where an evaluation has recently been conducted by theFATF on a given country, FSAP assessors may rely on that evaluation andfocus their own review on the actions taken by supervisors to address anyshortcomings identified by the FATF.

In the absence of any recent FATF evaluation, FSAP assessors willcontinue to assess countriessupervision of banksAML/ CFT controls.



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Consistency and implementation

38. The banking sector is only a part, albeit an important part, of afinancial system and in conducting this review of its Core Principles, the

Committee has sought to maintain consistency, where possible, with thecorresponding standards for securities and insurance (which havethemselves been the subject of recent reviews), as well as those foranti-money laundering and transparency.

Differences will, however, inevitably remain as key risk areas andsupervisory priorities differ from sector to sector. In implementing theCore Principles, supervisors should take into account the role of thebanking sector in supporting and facilitating productive activities for thereal economy.

I I . The Core Principles

39.The Core Principles are a framework of minimum standards for soundsupervisory practices and are considered universally applicable.

The Committee issued the Core Principles as its contribution tostrengthening the global financial system.

Weaknesses in the banking system of a country, whether developing ordeveloped, can threaten financial stability both within that country andinternationally.

The Committee believes that implementation of the Core Principles by allcountries would be a significant step towards improving financial stabilitydomestically and internationally, and provide a good basis for furtherdevelopment of effective supervisory systems.

The vast majority of countries have endorsed the Core Principles and

have implemented them.

40.The revised Core Principles define 29 principles that are needed for asupervisory system to be effective.



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Those principles are broadly categorised into two groups: the first group(Principles 1 to 13) focus on powers, responsibilities and functions ofsupervisors, while the second group (Principles 14 to 29) focus onprudential regulations and requirements for banks.

The original Principle 1 has been divided into three separate Principles,while new Principles related to corporate governance, and disclosure andtransparency, have been added.

This accounts for the increase from 25 to 29 Principles.

41. The 29 Core Principles are:

Supervisory powers, responsibilities and functions

Principle 1Responsibilities, objectives and powers:

An effective system of banking supervision has clear responsibilities andobjectives for each authority involved in the supervision of banks andbanking groups.

A suitable legal framework for banking supervision is in place to provideeach responsible authority with the necessary legal powers to authorisebanks, conduct ongoing supervision, address compliance with laws andundertake timely corrective actions to address safety and soundnessconcerns.

Principle 2 Independence, accountability, resourcing andlegal protection for supervisors:

The supervisor possesses operational independence, transparentprocesses, sound governance, budgetary processes that do not undermineautonomy and adequate resources, and is accountable for the discharge ofits duties and use of its resources.

The legal framework for banking supervision includes legal protection forthe supervisor.



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Principle 3Cooperation and collaboration:

Laws, regulations or other arrangements provide a framework forcooperation and collaboration with relevant domestic authorities and

foreign supervisors.

These arrangements reflect the need to protect confidential information.

Principle 4Permissible activities:

The permissible activities of institutions that are licensed and subject tosupervision as banks are clearly defined and the use of the wordbank innames is controlled.

Principle 5 Licensing criteria:

The licensing authority has the power to set criteria and rejectapplications for establishments that do not meet the criteria.

At a minimum, the licensing process consists of an assessment of theownership structure and governance (including the fitness and proprietyof Board members and senior management) of the bank and its widergroup, and its strategic and operating plan, internal controls, riskmanagement and projected financial condition (including capital base).Where the proposed owner or parent organisation is a foreign bank, theprior consent of its home supervisor is obtained.

Principle 6 Transfer of significant ownership:

The supervisor has the power to review, reject and impose prudential

conditions on any proposals to transfer significant ownership orcontrolling interests held directly or indirectly in existing banks to otherparties.



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Principle 7Major acquisitions:

The supervisor has the power to approve or reject (or recommend to theresponsible authority the approval or rejection of), and impose prudential

conditions on, major acquisitions or investments by a bank, againstprescribed criteria, including the establishment of cross-borderoperations, and to determine that corporate affiliations or structures donot expose the bank to undue risks or hinder effective supervision.

Principle 8Supervisory approach:

An effective system of banking supervision requires the supervisor todevelop and maintain a forward-looking assessment of the risk profile of

individual banks and banking groups, proportionate to their systemicimportance; identify, assess and address risks emanating from banks andthe banking system as a whole; have a framework in place for earlyintervention; and have plans in place, in partnership with other relevantauthorities, to take action to resolve banks in an orderly manner if theybecome non-viable.

Principle 9Supervisory techniques and tools:

The supervisor uses an appropriate range of techniques and tools toimplement the supervisory approach and deploys supervisory resourceson a proportionate basis, taking into account the risk profile and systemicimportance of banks.

Principle 10Supervisory reporting:

The supervisor collects, reviews and analyses prudential reports andstatistical returns from banks on both a solo and a consolidated basis, and

independently verifies these reports through either on-site examinationsor use of external experts.



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Principle 11Corrective and sanctioning powers ofsupervisors:

The supervisor acts at an early stage to address unsafe and unsound

practices or activities that could pose risks to banks or to the bankingsystem.

The supervisor has at its disposal an adequate range of supervisory toolsto bring about timely corrective actions.

This includes the ability to revoke the banking licence or to recommendits revocation.

Principle 12Consolidated supervision:

An essential element of banking supervision is that the supervisorsupervises the banking group on a consolidated basis, adequatelymonitoring and, as appropriate, applying prudential standards to allaspects of the business conducted by the banking group worldwide.

Principle 13Home-host relationships:

Home and host supervisors of cross-border banking groups shareinformation and cooperate for effective supervision of the group andgroup entities, and effective handling of crisis situations. Supervisorsrequire the local operations of foreign banks to be conducted to the samestandards as those required of domestic banks.

Prudential regulations and requirements

Principle 14Corporate governance:

The supervisor determines that banks and banking groups have robustcorporate governance policies and processes covering, for example,strategic direction, group and organisational structure, control



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environment, responsibilities of the banksBoards and seniormanagement, and compensation.

These policies and processes are commensurate with the risk profile and

systemic importance of the bank.

Principle 15Risk management process:

The supervisor determines that banks have a comprehensive riskmanagement process (including effective Board and senior managementoversight) to identify, measure, evaluate, monitor, report and control ormitigate all material risks on a timely basis and to assess the adequacy oftheir capital and liquidity in relation to their risk profile and market and

macroeconomic conditions.

This extends to development and review of contingency arrangements(incuding robust and credible recovery plans where warranted) that takeinto account the specific circumstances of the bank.

The risk management process is commensurate with the risk profile andsystemic importance of the bank.

Principle 16Capital adequacy:

The supervisor sets prudent and appropriate capital adequacyrequirements for banks that reflect the risks undertaken by, and presentedby, a bank in the context of the markets and macroeconomic conditions inwhich it operates.

The supervisor defines the components of capital, bearing in mind theirability to absorb losses.

At least for internationally active banks, capital requirements are not lessthan the applicable Basel standards.



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Principle 17Credit risk:

The supervisor determines that banks have an adequate credit riskmanagement process that takes into account their risk appetite, risk

profile and market and macroeconomic conditions.

This includes prudent policies and processes to identify, measure,evaluate, monitor, report and control or mitigate credit risk (includingcounterparty credit risk) on a timely basis.

The full credit lifecycle is covered including credit underwriting, creditevaluation, and the ongoing management of the banks loan andinvestment portfolios.

Principle 18Problem assets, provisions and reserves:

The supervisor determines that banks have adequate policies andprocesses for the early identification and management of problem assets,and the maintenance of adequate provisions and reserves.

Principle 19Concentration risk and large exposure limits:

The supervisor determines that banks have adequate policies andprocesses to identify, measure, evaluate, monitor, report and control ormitigate concentrations of risk on a timely basis.

Supervisors set prudential limits to restrict bank exposures to singlecounterparties or groups of connected counterparties.

Principle 20 Transactions with related parties:

In order to prevent abuses arising in transactions with related parties andto address the risk of conflict of interest, the supervisor requires banks toenter into any transactions with related parties on an arms length basis; tomonitor these transactions; to take appropriate steps to control or



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mitigate the risks; and to write off exposures to related parties inaccordance with standard policies and processes.

Principle 21Country and transfer risks:

The supervisor determines that banks have adequate policies andprocesses to identify, measure, evaluate, monitor, report and control ormitigate country risk and transfer risk in their international lending andinvestment activities on a timely basis.

Principle 22Market risks:

The supervisor determines that banks have an adequate market risk

management process that takes into account their risk appetite, riskprofile, and market and macroeconomic conditions and the risk of asignificant deterioration in market liquidity.

This includes prudent policies and processes to identify, measure,evaluate, monitor, report and control or mitigate market risks on a timelybasis.

Principle 23 Interest rate risk in the banking book:

The supervisor determines that banks have adequate systems to identify,measure, evaluate, monitor, report and control or mitigate interest raterisk in the banking book on a timely basis.

These systems take into account the banks risk appetite, risk profile andmarket and macroeconomic conditions.

Principle 24 Liquidity risk:

The supervisor sets prudent and appropriate liquidity requirements(which can include either quantitative or qualitative requirements orboth) for banks that reflect the liquidity needs of the bank.



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The supervisor determines that banks have a strategy that enablesprudent management of liquidity risk and compliance with liquidityrequirements.

The strategy takes into account the banks risk profile as well as marketand macroeconomic conditions and includes prudent policies andprocesses, consistent with the banks risk appetite, to identify, measure,evaluate, monitor, report and control or mitigate liquidity risk over anappropriate set of time horizons.

At least for internationally active banks, liquidity requirements are notlower than the applicable Basel standards.

Principle 25Operational risk:

The supervisor determines that banks have an adequate operational riskmanagement framework that takes into account their risk appetite, riskprofile and market and macroeconomic conditions.

This includes prudent policies and processes to identify, assess, evaluate,monitor, report and control or mitigate operational risk on a timely basis.

Principle 26 Internal control and audit:

The supervisor determines that banks have adequate internal controlframeworks to establish and maintain a properly controlled operatingenvironment for the conduct of their business taking into account theirrisk profile.

These include clear arrangements for delegating authority andresponsibility; separation of the functions that involve committing the

bank, paying away its funds, and accounting for its assets and liabilities;reconciliation of these processes; safeguarding the banks assets; andappropriate independent internal audit and compliance functions to testadherence to these controls as well as applicable laws and regulations.



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appropriately considered in the context of the assessments and in thedialogue between assessors and country authorities.

43.National authorities should apply the Core Principles in the

supervision of all banking organisations within their jurisdictions.Individual countries, in particular those with advanced markets andbanks, may expand upon the Core Principles in order to achieve bestsupervisory practice.

44.A high degree of compliance with the Core Principles should fosteroverall financial system stability; however, this will not guarantee it, norwill it prevent the failure of banks. Banking supervision cannot, andshould not, provide an assurance that banks will not fail. In a market

economy, failures are part of risk-taking.

45.The Committee stands ready to encourage work at the national levelto implement the Core Principles in conjunction with other supervisorybodies and interested parties.

The Committee invites the international financial institutions and donoragencies to use the Core Principles in assisting individual countries tostrengthen their supervisory arrangements.

The Committee will continue to collaborate closely with the IMF and theWorld Bank in their monitoring of the implementation of the Committeesprudential standards.

The Committee also remains committed to further enhancing itsinteraction with supervisors from non-member countries.



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NUMBER 2

Stress Testing ModelSymposium

Federal Reserve Bank of Boston

Note: You MUST download the excellent presentations at:http:/ / www.bostonfed.org/ StressTest2012/index.htm

The Federal Reserve and Board of Governors are organizing asymposium on best practices and challenges as they relate

to stress testing.

The goal of the symposium is to improve ourunderstanding of how to develop a robust stress testingframework.

Some of the questions that will be discussed include what are the topthree "must have" elements of a robust stress testing framework? Whattype of scenarios should the supervisory and company-run stress testconsider?

What are quantitative approaches to modeling pre-provision net revenueby business line?

Notes:

As part of the central bank, the Federal Reserve Bank of Boston promotessound growth and financial stability in New England and the nation.

The Bank contributes to local communities, the region, and the nationthrough its high-quality research, regulatory oversight, and financialservices, and through its commitment to leadership and innovation.

The Boston Fed, the First District of the Federal Reserve System, servesthe New England region - Connecticut [except Fairfield County], Maine,Massachusetts, New Hampshire, Rhode Island, and Vermont.

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NUMBER 3

Address by Deputy Governor MatthewElderfield, to the I rish Funds Industry

Association

Thank you very much, IFIA, for the invitation tospeak at this year's conference. IFIA plays animportant role in the I rish international financialservices sector and it is my pleasure to be here today to share somethoughts about the regulatory agenda for the funds industry.

Before I do that, can I take a momentto acknowledge the significantcontribution that has been made by

Gary Palmer, as the outgoing CEO ofIFIA, to the growth and success of the funds industry in this country andto thank him publicly for the good working relationship he developedwith the Central Bank. Let me also welcome Garyssuccessor and say thatI look forward to maintaining a good dialogue with Pat Lardner: indeed,that has already begun.

IFIA is an important representative body because the funds industry is animportant sector for Ireland. You are all well versed on the key statisticsthat illustrate this, in terms ofassets under management (1.2 trillion) or

number of employees in the sector (some 12,000 or so).One statistic that is not so readily accessible and required a bit ofdigging around is the number of investors in Irish regulated funds orfunds supported by Irish fund administrators.

There are in fact over 1.3 million such investors a very significantnumber indeed.

That shows the importance of the Irish market place in providing aservice to investors across Europe and the world.

And, indeed, it shows the important responsibility that we both have asindustry and regulator in ensuring high standards of investor protection.



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These investors place trust in the Irish system of regulation and ourreputation for maintaining high standards is vital to the success of theinternational financial services sector including the funds industry.

The key message I have for you today is that getting the regulatory

framework right for investor protection is important for the reputation ofthe I FSC and the success of the funds industry.

I want to explain that we have an opportunity to revisit and improve thatframework in Europe and domestically, with respect to our regulatoryprocesses, and by enhancing our approach to supervision.

The starting point for approaching regulation of the fund sector should bean acceptance that funds are different.

The traditional concerns of the prudential supervisor do not apply to the

funds industry.

Nor do the traditional consumer protection issues relating to the salesprocess apply directly: these are not relevant to the fund or funds serviceprovider per se, but are picked up elsewhere in terms of the regulatoryframework applying to investment firms and intermediaries.

Instead, our concern is one of investor protection along a number ofdimensions:ensuring that the investment that is available has anappropriate risk profile for the type of customer involved; ensuring

adequate disclosure to investors so they can make an informed choiceabout risk. addressing operational risks related to valuation or protectionof assets; and, reducing the risk of fraud and other financial crimeproblems.

There is also a new dimension to funds regulation, going beyond investorprotection and considering the systemic risks posed by particular aspectsof the sector, which I will return to at the end of these remarks.

This different regulatory focuscorrectly argues for a different supervisoryapproach.

This involves clear standards around investment products, which as youknow are mostly set at a European level.



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As a supervisor, it means the focus of effort is on the authorisation processand ensuring robust arrangements are in place regarding the approval ofnew funds and ensuring adequate disclosure.

Our supervisory model is also designed to place the emphasis of our work

on the fund service providersboth administrators and custodiansrather than on the individual funds themselves.

Bearing this supervisory model in mind, letsexplore the individualelements and consider what changes are afoot - and what scope there is tore-engineer the current regulatory framework.

European Developments

It is right that we should start at the European level.

The EU is of ever increasing importance to the funds industry.The volume of initiatives from Europe in financial services generally, butwith respect to funds in particular, seems at times overwhelming.

The structure of regulation and standard-setting in Europe hasundergone fundamental changes, with the advent of the Europeansupervisory authorities including ESMA.

And the rules that now emerge from Europe tend to have direct bindingeffect on financial services firms, rather than being transposed and

sometimes modified by national authorities.

The trend is for more Europe, affecting more parts of financial servicesregulation, with less national discretion.

This means that engagement in Europe is more important than ever.

At the Central Bank of Ireland our strategy has been to develop specialistpolicy teams responsible for key areas of European directives andregulations, to invest more time in the European and internationalpolicy-making processes, to be more focused in our goals and to get inearly, trying to influence European developments while they are still atthe formative stage.

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risk management presentation september 24 2012

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