Banking Supervision and Oversight — Glossary · Global Certification Course in European Union Law and Banking Regulation

Banking Supervision and Oversight #

Banking Supervision and Oversight

Banking supervision and oversight refer to the regulatory activities carried out… #

It involves monitoring and regulating banks to prevent financial crises, protect depositors' funds, and maintain the overall health of the banking sector.

European Banking Authority (EBA) #

European Banking Authority (EBA)

The European Banking Authority (EBA) is an independent EU regulatory agency that… #

It plays a key role in harmonizing banking rules and standards within the EU.

European Central Bank (ECB) #

European Central Bank (ECB)

The European Central Bank (ECB) is the central bank for the eurozone countries #

It is responsible for conducting monetary policy, maintaining price stability, and supervising banks within the euro area. The ECB plays a crucial role in ensuring the stability of the financial system in the European Union.

Capital Adequacy #

Capital Adequacy

Capital adequacy refers to the ability of a bank to meet its financial obligatio… #

Banks are required to maintain sufficient capital to cover risks and unexpected losses, as mandated by regulatory authorities.

Basel III #

Basel III

Basel III is a set of international banking regulations developed by the Basel C… #

It aims to strengthen bank capital requirements, improve risk management practices, and enhance the stability of the global banking system.

Single Supervisory Mechanism (SSM) #

Single Supervisory Mechanism (SSM)

The Single Supervisory Mechanism (SSM) is a system of banking supervision establ… #

It aims to ensure consistent and effective supervision of banks within the euro area to maintain financial stability.

Deposit Insurance Scheme #

Deposit Insurance Scheme

A deposit insurance scheme is a financial safety net that protects depositors' f… #

It provides a guarantee that depositors will receive a certain amount of their deposits back, up to a specified limit, even if the bank becomes insolvent.

Systemically Important Financial Institutions (SIFIs) #

Systemically Important Financial Institutions (SIFIs)

Systemically Important Financial Institutions (SIFIs) are banks or other financi… #

They are subject to enhanced regulatory oversight to prevent disruptions to the financial system in the event of their failure.

Resolution Mechanism #

Resolution Mechanism

A resolution mechanism is a set of procedures and tools used to manage the failu… #

It aims to minimize the impact of the institution's failure on financial stability and protect depositors and taxpayers from bearing the costs of a bailout.

Anti #

Money Laundering (AML)

Anti #

Money Laundering (AML) refers to a set of regulations and practices aimed at preventing criminals from disguising the proceeds of illegal activities as legitimate funds. Banks are required to implement AML measures to detect and report suspicious transactions to authorities.

Know Your Customer (KYC) #

Know Your Customer (KYC)

Know Your Customer (KYC) is a process through which banks verify the identity of… #

It helps banks comply with AML regulations and prevent money laundering, terrorist financing, and other illicit activities.

Financial Intelligence Unit (FIU) #

Financial Intelligence Unit (FIU)

A Financial Intelligence Unit (FIU) is a government agency responsible for recei… #

FIUs play a crucial role in combating money laundering and terrorist financing.

Market Abuse Regulation (MAR) #

Market Abuse Regulation (MAR)

The Market Abuse Regulation (MAR) is an EU regulation that aims to prevent and d… #

It sets out rules for reporting suspicious transactions, disclosing inside information, and conducting market surveillance to maintain market integrity.

Consumer Protection #

Consumer Protection

Consumer protection refers to the measures taken by regulators to safeguard the… #

It includes rules on transparency, disclosure, dispute resolution, and redress mechanisms to protect consumers from unfair practices.

Operational Risk #

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed interna… #

It includes risks related to fraud, errors, disruptions, and other operational failures that can impact a bank's ability to conduct its business effectively.

Liquidity Risk #

Liquidity Risk

Liquidity risk is the risk that a bank may not be able to meet its short #

term obligations due to a lack of liquid assets or difficulties in accessing funding. Banks are required to maintain sufficient liquidity to withstand unexpected cash outflows and market disruptions.

Market Risk #

Market Risk

Market risk is the risk of losses in a bank's trading portfolio due to changes i… #

Banks are exposed to market risk from their trading activities, investment securities, and foreign exchange transactions.

Credit Risk #

Credit Risk

Credit risk is the risk that a borrower will fail to repay a loan or meet other… #

Banks assess credit risk by evaluating the creditworthiness of borrowers, setting risk limits, and monitoring loan performance to mitigate potential losses.

Interest Rate Risk #

Interest Rate Risk

Interest rate risk is the risk that changes in interest rates will affect a bank… #

Banks are exposed to interest rate risk from mismatches in the maturity and repricing of their interest-sensitive instruments.

Supervisory Review and Evaluation Process (SREP) #

Supervisory Review and Evaluation Process (SREP)

The Supervisory Review and Evaluation Process (SREP) is a regulatory framework u… #

It involves a comprehensive review of banks' risk management practices, governance structures, and internal controls to ensure their soundness.

Own Funds #

Own Funds

Own funds are the capital resources that a bank holds to cover its risks and abs… #

They include regulatory capital, such as common equity tier 1 capital, additional tier 1 capital, and tier 2 capital, which are required to meet capital adequacy requirements set by regulators.

Countercyclical Capital Buffer (CCyB) #

Countercyclical Capital Buffer (CCyB)

The Countercyclical Capital Buffer (CCyB) is a regulatory tool that allows banki… #

It aims to enhance the resilience of banks and mitigate systemic risks in the financial system.

Supervisory Reporting #

Supervisory Reporting

Supervisory reporting refers to the regular submission of financial and risk dat… #

It includes the reporting of prudential information, such as capital ratios, liquidity metrics, and risk exposures, to ensure compliance with regulatory requirements.

Consolidated Supervision #

Consolidated Supervision

Consolidated supervision is a regulatory approach that involves supervising a ba… #

It allows regulators to assess the overall risk profile and financial health of the group as a whole.

Resolution Planning #

Resolution Planning

Resolution planning is the process of developing strategies and tools to manage… #

It involves preparing for potential insolvency scenarios, identifying critical functions, and establishing resolution tools to facilitate a smooth wind-down process.

Recovery Planning #

Recovery Planning

Recovery planning is the process of developing strategies and measures to restor… #

It involves identifying early warning indicators, setting trigger points for action, and implementing recovery options to prevent a bank from failing.

Stress Testing #

Stress Testing

Stress testing is a risk management tool used by banks to assess their resilienc… #

It involves simulating extreme events, such as economic downturns, market volatility, or credit losses, to evaluate the impact on a bank's capital, liquidity, and overall financial stability.

Risk Appetite #

Risk Appetite

Risk appetite is the level of risk that a bank is willing to accept in pursuit o… #

It represents the amount of risk that a bank is prepared to take on to achieve its financial goals while maintaining a prudent level of risk management.

Supervisory Cooperation #

Supervisory Cooperation

Supervisory cooperation refers to the collaboration and information sharing betw… #

It involves exchanging data, coordinating supervisory actions, and conducting joint inspections to ensure consistent oversight of multinational banking groups.

Outsourcing #

Outsourcing

Outsourcing is the practice of contracting out certain functions, services, or a… #

Banks are required to manage outsourcing risks, ensure compliance with regulations, and maintain oversight of outsourced activities to protect their operations and customers.

Financial Stability #

Financial Stability

Financial stability refers to the condition in which the financial system functi… #

It involves maintaining confidence in the banking sector, preventing systemic risks, and ensuring the resilience of financial institutions to external threats.

Prudential Regulation #

Prudential Regulation

Prudential regulation is a set of rules and standards designed to promote the sa… #

It includes requirements for capital adequacy, liquidity management, risk assessment, and governance to ensure the prudent operation of banks.

Resolution Authority #

Resolution Authority

A resolution authority is a government agency or regulatory body responsible for… #

It has the legal authority to intervene, restructure, or wind down troubled banks to protect depositors, maintain financial stability, and minimize the impact on taxpayers.

Microprudential Supervision #

Microprudential Supervision

Microprudential supervision focuses on monitoring and regulating individual bank… #

It involves assessing the risks, capital adequacy, governance, and compliance of banks with regulatory requirements to protect depositors and maintain the stability of the financial system.

Macroprudential Supervision #

Macroprudential Supervision

Macroprudential supervision aims to monitor and address systemic risks that coul… #

It involves assessing interconnectedness, vulnerabilities, and contagion effects across banks and other financial institutions to prevent the buildup of risks and safeguard financial stability.

Operational Continuity #

Operational Continuity

Operational continuity refers to the ability of a bank to maintain critical func… #

It involves implementing robust business continuity plans, disaster recovery measures, and resilience strategies to ensure the uninterrupted operation of essential services and systems.

Supervisory College #

Supervisory College

A supervisory college is a forum for cooperation and exchange of information amo… #

It facilitates the joint assessment of risks, coordination of supervisory actions, and resolution planning for cross-border institutions.

Capital Buffer #

Capital Buffer

A capital buffer is an additional layer of capital that banks are required to ho… #

It includes capital conservation buffers, countercyclical buffers, and systemic risk buffers, which are designed to strengthen the stability of banks.

Resolution Fund #

Resolution Fund

A resolution fund is a pool of resources set up by governments or financial auth… #

It aims to ensure that the resolution process is funded independently and does not rely on taxpayer bailouts.

Leverage Ratio #

Leverage Ratio

The leverage ratio is a measure of a bank's capital adequacy that compares its c… #

It helps regulators assess the level of leverage and potential vulnerabilities in a bank's balance sheet to prevent excessive risk-taking and maintain financial stability.

Credit Default Swap (CDS) #

Credit Default Swap (CDS)

A credit default swap (CDS) is a financial derivative that allows investors to b… #

It is used to hedge credit risk, speculate on credit events, or enhance the creditworthiness of investments by transferring credit exposure to other parties.

Resolution Directive #

Resolution Directive

A resolution directive is a legal instrument issued by a resolution authority to… #

It sets out the actions, tools, and measures to be taken to restructure, recapitalize, or wind down the institution in an orderly manner to protect depositors and maintain financial stability.

Supervisory Stress Test #

Supervisory Stress Test

A supervisory stress test is a regulatory exercise conducted by banking supervis… #

It involves simulating severe stress conditions, such as recessions, market downturns, or credit losses, to evaluate the impact on a bank's capital, liquidity, and risk management.

Deposit Guarantee Scheme (DGS) #

Deposit Guarantee Scheme (DGS)

A deposit guarantee scheme (DGS) is a financial safety net that protects deposit… #

It provides reassurance to depositors that their savings are safe and will be reimbursed by the DGS in case of insolvency or liquidation of a bank.

Supervisory Review Process (SRP) #

Supervisory Review Process (SRP)

The supervisory review process (SRP) is a regulatory framework used by banking s… #

It involves conducting regular reviews, stress tests, and evaluations to ensure that banks comply with prudential requirements and maintain sound risk management practices.

Recovery and Resolution Directive (RRD) #

Recovery and Resolution Directive (RRD)

The recovery and resolution directive (RRD) is an EU regulation that sets out ru… #

It aims to prevent taxpayer bailouts, protect depositors, and maintain financial stability by establishing resolution tools, early intervention measures, and recovery planning requirements.

Supervisory Board #

Supervisory Board

A supervisory board is a governing body responsible for overseeing the managemen… #

It supervises the activities of the executive management, sets policies, and ensures compliance with regulatory requirements to safeguard the interests of shareholders, depositors, and other stakeholders.

Core Equity Tier 1 Capital #

Core Equity Tier 1 Capital

Core equity tier 1 capital is the highest quality capital that banks hold to abs… #

It consists of common equity shares and retained earnings, which provide a bank with a strong buffer against risks and ensure its resilience in times of financial stress.

Maximum Distributable Amount (MDA) #

Maximum Distributable Amount (MDA)

The maximum distributable amount (MDA) is the limit on the amount of profits tha… #

It ensures that banks retain adequate resources to support their operations and absorb potential losses.

Supervisory Assessment #

Supervisory Assessment

Supervisory assessment is the process through which banking supervisors evaluate… #

It involves conducting on-site inspections, off-site monitoring, and regular reviews to assess the soundness of a bank's operations and risk management practices.

Single Resolution Mechanism (SRM) #

Single Resolution Mechanism (SRM)

The single resolution mechanism (SRM) is a framework established by the EU to fa… #

It aims to ensure a coordinated and timely response to bank failures, protect depositors, and maintain financial stability by providing a common approach to resolving troubled institutions.

Supervisory Priorities #

Supervisory Priorities

Supervisory priorities are the key areas of focus for banking supervisors in the… #

They include assessing risks, evaluating governance structures, reviewing compliance with regulations, and addressing emerging threats to financial stability to ensure effective supervision and maintain the soundness of the banking sector.

Fit and Proper Assessment #

Fit and Proper Assessment

A fit and proper assessment is a regulatory process used to evaluate the qualifi… #

It ensures that bank directors, senior managers, and other key personnel meet the standards of honesty, skill, and experience required to fulfill their roles effectively and responsibly.

Supervisory Framework #

Supervisory Framework

A supervisory framework is a set of rules, guidelines, and procedures used by ba… #

It includes principles of good governance, risk management practices, supervisory tools, and enforcement mechanisms to ensure the safety, soundness, and integrity of the banking system.