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Bank Supervision | Implementation of Basel Standards in Serbia | Basic Information

Basic Information

Why do banks need capital?

Bank’s capital is a source of funds – growth of the bank, it provides security to the bank in regards not only to the existing, but also to future unidentified risks, it represents a protection of the interests of creditors, depositors of the bank, and helps building trust in the bank and the entire banking sector as well as financial system. Namely, bank’s capital represents a stable source of funds which, in case of unexpected losses, serves as buffer to cover these losses, preventing these losses from being covered at the expense of the depositors, and all this contributes to the building of trust and further development of the banking sector. Considering the role of banks in the context of allocation of funds in a country’s economy, a positive influence on the development of economy as a whole is also evident. For this reason, it is essential, although this is frequently overlooked, that every bank, and indirectly the entire banking system, have the appropriate level of capital, and adequately manage their capital, in accordance with the nature, scope and complexity of their activities and risks they are or can be exposed to during the course of their operations.

What factors are used to determine the level of capital?

Several factors are used to determine the level of bank’s capital: bank’s management strategy, type and level of risks taken by the bank, shareholder’s expectations (ROE), opinions of market participants (clients, rating agencies, etc.) and their perceptions of the bank, as well as international standards on the necessary level and structure of bank’s capital (Basel standards) and capital requirements of regulators (NBS) used to maintain and improve financial stability.

The Basel Committee on Banking Supervision

The Basel Committee on Banking Supervision (BCBS) was founded by the G10 member states in the late 1974, under the auspices of the Bank for International Settlements (BIS), Basel. In 1975, BCBS begins to operate and today it has a total of 13 member states: Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, The Netherlands, Spain, Sweden, Switzerland, Great Britain, the United States of America.

The main goal of the BCBS is to improve the understanding of key challenges in supervision and to improve quality of banking supervision worldwide.

The BCBS does not have a supranational control authority and its conclusions are not legally binding. It formulates basic supervision standards and gives recommendations based on the best practice, in expectation that supervisors worldwide would implement them in the way that is appropriate for their national systems. In this way, the BCBS ensures identical principles and common standards of supervision in different countries.