Belgium: Detailed Assessment of Compliance with the Basel Core Principles for Effective Banking Supervision

International Monetary Fund
2013 IMF Staff Country Reports  
International Monetary Fund Washington, D.C. equally on the supervisory oversight conducted by the authorities. In addition to substantial regulatory changes, the supervisory authorities have also had to adjust to the challenges of transition wrought by re-design of the regulatory architecture and the move of prudential supervision to the central bank. 2. The National Bank of Belgium (NBB) deploys high-quality supervisory practiceswhich it is building upon through well conceived initiatives and
more » ... reforms-but there are weaknesses in its supervisory process. The NBB has already instituted some enhancements to its risk oversight, such as an annual risk review, and is executing a focused but multi-faceted plan of improvements. These projects will streamline and integrate processes, create greater flexibility in data handling and strengthen and deepen analysis at firm specific and horizontal levels. It is important for the NBB to fully harness these projects in refining its risk based supervisory processes to ensure that it has identified the minimum adequate level of supervisory attention for each institution according to the institution's risk profile. Should crisis conditions re-emerge there will be consequential effects on the entire supervisory process as limited resources will need to be reallocated. The NBB needs to be able to rely on its supervisory processes to guide its decision making in order to manage such reallocation in a fully risk-focused manner. The embedding of this more systematic process would allow the NBB to ensure that the dilution of supervisory activity is dispersed proportionately. 3. An area of weakness in the large exposure regime allows for concessions to smaller banks to exceed the 25 percent limit. Where the amount of €150 million is higher than 25 percent of the own funds, the value of the exposure, after credit risk mitigation, is allowed to exceed the 25 percent limit up to 100 percent of own funds. The concession is not peculiar to Belgium and is derived from Directive 2009/111/EC that has modified Directive 2006/48/EC and a national discretion is however foreseen in order to set a stricter limit (four banks within the EC have done so). While the concession is permitted under the Directive, the concession significantly weakens the regime and exposes smaller banks to concentration risk. In practice, smaller banks don't have access to deep capital markets to quickly raise capital in the event an exposure to an obligor defaults or becomes impaired. 7
doi:10.5089/9781484351758.002 fatcat:ynsixfm7s5avfkp2p7gibce6t4