4/25/2019

What is RBA?

 Focuses on RISKS faced by each bank and the MITIGATION of the same

 Recognizes that size and reach of different financial institutions will modify
the risk they pose to the markets

RISK-BASED APPROACH  International standard

MODERN APPROACH TO REGULATION

COMPARISON WITH OLD METHOD

IMPORTANT:

 Despite the probability of a large bank COMPLIANCE-BASED RISK- BASED

being minimal, the focus for the regulator
Probability of may need to be on allocating resources
to supervising said bank if its collapse
Adverse Event could have a severe impact on the
economy.
and
 One size fits all approach
 Entities are equally regulated
 Unique approach based on data for
each bank
 Regulator’s resources are allocated
dependent on risk assessment

Impact on  Risk adverse

 Allows risk-taking as long as the bank
Economy shows ability to manage, absorb and
price those risks

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TOOLS OF SUPERVISION
Role of Role of BSP
Board of Directors and
Senior Management EVALUATE QUALITY OF
 Onsite Examination  Offsite Monitoring
MANAGEMENT OVERSIGHT
ADEQUACY OF POLICIES AND
- primarily responsible PROCEDURES
- free to exercise judgment Report on Examination Continuing assessment
ROBUSTNESS OF RISK MANAGEMENT
SYSTEMS and CAMELS rating of bank’s risk profile
EFFECTIVENESS OF INTERNAL AUDIT
FUNCTION
These 2 are
interdependent

Onsite Examination
CAMELS rating International rating
system
Capital adequacy (US- developed)
May be Regular or Special Audit of: Results in: Asset quality
Compliance with Management capability
Annual regulations
Report on Examination
Earnings Scale of 1(L) to 5 (H)
or CAMELS rating
Conducting business in a Liquidity
safe and sound manner Prompt Corrective Action
As required by vote of Sensitivity
(PCA)
Operations and books
5 of 7 Monetary Board
members

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Directs Management to restore the

bank to normal condition, ideally
within 1 year

Through:

Prompt 1. CAPITAL RESTORATION

“white knights”
Corrective 1. BUSINESS IMPROVEMENT
Action (includes recommending
change in management)
3. CORPORATE GOVERNANCE
(includes change in Board,
more frequent reporting,
termination of risky or
disadvantageous business
relationships