The analysis of the financial crisis has revealed not only major market and regulatory failures, but also shortcomings in supervisory approaches and in banks’ systems of internal and external controls. These failures and shortcomings played a significant role in the origin and evolution of the crisis. In some important cases, the crisis revealed that banks’ internal governance, and their internal control functions in particular, were ineffective or even unsuitable when faced with the demands of overseeing the growing levels of risk undertaken by intermediaries, and especially the interrelations between these exposures. So what are the implications of the crisis, the regulatory innovations now being implemented, and the changes in supervisory policies and practices, for banks’ internal control systems? Given the role of internal control functions in risk-based supervision, what is the exact relationship between supervisor and supervised as defined by Basel 3, Pillar 2, with regard to ICAAP and SREP? One important lesson to emerge from recent experience is the need to encourage a new culture amongst banks, ensuring that they appreciate the key role of internal controls as a tool for managing and monitoring risk.

Gualandri, E.. "Basel 3, Pillar 2: the role of banks’ internal governance and control function" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2011. https://doi.org/10.25431/11380_1197439

Basel 3, Pillar 2: the role of banks’ internal governance and control function

Gualandri, E.
2011

Abstract

The analysis of the financial crisis has revealed not only major market and regulatory failures, but also shortcomings in supervisory approaches and in banks’ systems of internal and external controls. These failures and shortcomings played a significant role in the origin and evolution of the crisis. In some important cases, the crisis revealed that banks’ internal governance, and their internal control functions in particular, were ineffective or even unsuitable when faced with the demands of overseeing the growing levels of risk undertaken by intermediaries, and especially the interrelations between these exposures. So what are the implications of the crisis, the regulatory innovations now being implemented, and the changes in supervisory policies and practices, for banks’ internal control systems? Given the role of internal control functions in risk-based supervision, what is the exact relationship between supervisor and supervised as defined by Basel 3, Pillar 2, with regard to ICAAP and SREP? One important lesson to emerge from recent experience is the need to encourage a new culture amongst banks, ensuring that they appreciate the key role of internal controls as a tool for managing and monitoring risk.
Settembre
Gualandri, E.
Gualandri, E.. "Basel 3, Pillar 2: the role of banks’ internal governance and control function" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2011. https://doi.org/10.25431/11380_1197439
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