Goncharova M.V. Basel II International Convention: Four Principles of Supervisory Review Process

Marina V. Goncharova
Doctor of Economic Sciences, Professor, Department of Economics and Management
Plekhanov Russian State University of Economics (Volgograd Branch)
Volga-Donskaya St., 11, 400066 Volgograd, Russian Federation, This email address is being protected from spambots. You need JavaScript enabled to view it.

Introduction. The article continues the study of the Basel II, the author examines the four basic principles of the supervisory process. Structurally, this paper examines the position of the Second component of Basel II (Part III of the Agreement), this component integrates rules-principles of the process of supervision of credit institutions by national authorities (central banks) in the member countries of the Basel II – International Convergence of Capital Measurement and Standards capital: new approaches. The purpose of research is to reveal the four rules-principles of supervision of compliance with the provisions of the banks on the measurement of capital and capital standards by the competent authorities. Methods. We used in combination the methods of scientific knowledge, including basic – methods of system analysis and comparative law. The results justified that the Basel II supervisory process is intended to ensure the adequacy of banks’ capital available to cover all risks and encourage banks to develop and modernize the methods of monitoring and risk management, which banks are exposed to. We established the responsibility of heads of banks for the development of the bank’s capital assessment procedures for determining the level of capital corresponding to the nature of the risk and control environment of the bank. Supervisors assess the ability of banks to determine capital requirements regarding risks, intervene in this process, in dialogue with the banks to ensure the rapid adoption of measures to reduce the risks of capital replenishment banks. The growth of bank risk is neutralized by an increase in bank capital, the strengthening of the risk management system, the establishment of internal limits, increase of allocations to reserves, improvement of internal control. Conclusions. The Basel II contains four basic principles of supervisory review, which complement the detailed Core Principles for Effective Banking Supervision (Basel Committee on Banking Supervision, September 1997), and Core Principles Methodology (Basel Committee on Banking Supervision, October 1999).

Key words: bank, risks, capital, sufficiency, principles, regulation, supervision, international convention.

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