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Basel 3, Pillar 2: the role of banks’ internal governance and control function

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  • Elisabetta Gualandri

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Abstract

The analysis of the financial crisis has revealed not only major market and regulatory failures, but also shortcomings in supervisory approaches and in banks’ systems of internal and external controls. These failures and shortcomings played a significant role in the origin and evolution of the crisis. In some important cases, the crisis revealed that banks’ internal governance, and their internal control functions in particular, were ineffective or even unsuitable when faced with the demands of overseeing the growing levels of risk undertaken by intermediaries, and especially the interrelations between these exposures. So what are the implications of the crisis, the regulatory innovations now being implemented, and the changes in supervisory policies and practices, for banks’ internal control systems? Given the role of internal control functions in risk-based supervision, what is the exact relationship between supervisor and supervised as defined by Basel 3, Pillar 2, with regard to ICAAP and SREP? One important lesson to emerge from recent experience is the need to encourage a new culture amongst banks, ensuring that they appreciate the key role of internal controls as a tool for managing and monitoring risk.

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Paper provided by Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi" in its series Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) with number 11091.

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Length: pages 18
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:mod:wcefin:11091

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  1. Davide Ferrari & Sandra Paterlini, 2007. "The Maximum Lq-Likelihood Method: an Application to Extreme Quantile Estimation in Finance," Center for Economic Research (RECent) 001, University of Modena and Reggio E., Dept. of Economics.
  2. Brunetti Marianna, 2007. "Population Ageing, Household Portfolios and Financial Asset Returns: a Survey of the Literature," Politica economica, Società editrice il Mulino, issue 2, pages 171-208.
  3. Simona Castellani & Chiara Pederzoli & Costanza Torricelli, 2008. "Indebtedness, macroeconomic conditions and banks’ loan losses: evidence from Italy," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08014, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  4. Riccardo Ferretti & Francesco Pattarin, 2008. "Is public information really public? The role of newspapers," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08013, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
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