Banking Supervision in Bosnia and Herzegovina: Key Aspects
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Deposit Insurance System
A law on deposit insurance was adopted in Bosnia and Herzegovina, establishing the Agency for Deposit Insurance of Bosnia and Herzegovina as responsible for its implementation. The system aims to protect both the banking sector and clients by ensuring that deposits are insured up to a certain amount.
Benefits of Deposit Insurance
- Protects depositors’ funds
- Ensures stability in the banking sector
- Promotes confidence in the banking system
Regulatory Framework
Entity regulators have harmonized their legislative frameworks, making membership in deposit insurance one of the basic conditions for obtaining a license. This ensures that all banks operate within a consistent regulatory environment.
Importance of Harmonization
- Enhances consistency and predictability
- Simplifies compliance for banks
- Improves supervision and regulation
Risk Management and Supervision
Traditional approaches to banking supervision focus on capital requirements and compliance with regulations. However, this may not be sufficient in today’s global financial context, where banks can suffer significant losses quickly due to trading operations or other factors.
Modern Approaches to Supervision
- Focus on risk-based supervision
- Incorporate market discipline and supervisory independence
- Enhance public monitoring of banks
Public Monitoring of Banks
Improving private monitoring of banks by requiring them to publicly publish audit reports and ratings from domestic and international agencies can enhance market discipline and supervisory independence. This approach holds bank management accountable for risk levels and potential losses, promoting a culture of responsibility within the banking sector.
Benefits of Public Monitoring
- Enhances transparency and accountability
- Improves market discipline and supervision
- Promotes a culture of responsibility
Supervisor’s Role
The supervisor’s goal is to build a system that protects various groups’ interests, including founders, shareholders, state authorities, creditors, clients, and participants in the financial market. Effective supervision involves disabling undesirable activities, which may imply closure in some cases, depending on the intensity of the irregularity.
Importance of Supervision
- Protects stakeholders’ interests
- Ensures stability in the financial system
- Promotes a culture of responsibility
Prompt Corrective Action
The supervisor is required to take prompt corrective action against institutions that engage in risky behavior or exhibit signs of instability. This action should be taken with a focus on protecting the stability of the financial system and ensuring that depositors’ funds are secure.
Benefits of Prompt Corrective Action
- Enhances stability in the financial system
- Protects depositors’ funds
- Promotes accountability and responsibility
Subsidization of Problematic Banks
Recent experiences suggest that states have subsidized problematic banks at taxpayers’ expense to maintain social peace. However, this approach is criticized as it burdens taxpayers while primarily benefiting large creditors and owners, with rare compensation for depositors in case of bank failures.
Criticisms of Subsidization
- Burdens taxpayers
- Favors large creditors and owners
- Ignores depositor interests