ɪnarket incentives, but should strive towards fostering a greater
level of competition. Markets, in his opinion, should be the
“driving force behind the evolution of the industry”—since
regulators are not well equipped with the necessary knowledge
and proper incentives which are required for defining an effi-
cient market framework.
60. See „Enhancements to the Basel II Framework" Basel Committee
on Banking Supervision publications July 2009 at page 12
61. ibid
62. ibid
63. See European Commission, “Economic Crisis in Europe:
Causes, Consequences and Responses” Section 3.2. Γ Crisis
Resolution Policies: Stress Testing of Banks" <http: / Zec.europa.
eu/economy_Jinance/publications/publicationi 5$87_en.pdJ> It is
also Iiighlighted in the report that stress tests could serve as
“decisive tools in accomplishing this task since they provide
information about banks’ resilience and ability to absorb pos-
sible shocks ”
64. See Consultative Document of the Basel Committee tor
Banking Supervision, “Strengthening the Resilience of the
Banking Sector” December 2009at page 55
65. See M Ojo, ‘ ‘Extending the Scope of Pmdential Supemsion:
Reguhtory Developments During and Beyond the ‘Effective’
Periods of the Post BCCI and the Capital Requirements
Directives’ Qanuary 2010), forthcoming in the Journal of
Advanced Research in Law and Economics.
66. Accompanying Doaiment to the Proposal for a Directive of
the European Parliament and of the Council amending Capital
Requirements Directive on trading book, Seairitisation issues
and remuneration policies. < http:ZZec.europa.eu/internal_tnarketZ
batik/docs Zregcapital /com2009/i mpact_ass es ment_en .pdf> See page
46 of 47
67. See Consultative Document of the Basel Committee for
Banking Supervision, “Strengthening the Resilience of the
Banking Sector” December 2009 paragraph 185 at page 56;
for further information on the Strengtlis and weaknesses of
banks’ internal credit models, also see M Ojo,‘The Responsive
Approach by the Basel Conunittee (on Banking Supervision)
to Reguhtion: Meta Risk Regulation, the Internal Ratings
Based Approaches and the Advanced Measurement Approaches
(2009)http: Z/mpra.ub.utii-muaichai.de/16752/ and http://ssrn.
com Zabstmct=I 447446
68. See „Enhancements to the Basel II Framework" Basel Committee
on Banking Supervision publications July 2009 paragraph 29 <
http: //ttwtubis.org/publ∕bcbs 157.pdf∕noframes = 1> at page 16.The
Basel Committee attributes the increased likelihood that differ-
ent sectors of a bank are exposed to a common set of products,
risk factors or counter parties, to the growth of market based
intermediation.
69. See Basel Conunittee on Banking Supervision, Consultative
Document „International Framework for Liquidity Risk
Measurement, Standards and Monitoring < http://imMKbis.oig/
publZbcbs l 65. httιι> at page 2
70. ibid
71. Creative compliance being the use of rules to escape control
without actually violating those rules
72. V Beattie, S Fearnley and R Brandt Behind Closed Doors: VVhat
CompatiyAudit is Reall)'About
(ICAEW) 2001 at page 11
73. Off balance sheet items are obligations which are contingent
liabilities of a company∕bank—and which as a result, do not
appear on its balance sheet. Formal distinction between on and
Offbalance sheet items, even though sometimes detailed, depend
to an extent on the degree of judgement which is exercised by
management.
74. The primary theme being the importance of successfolly com-
municating results obtained from monitoring and measuring
such risks, and the role of corporate governance in ensuring
such effective conununication.
75. See Consultative Doaiment, „International Framework for
Liquidity Risk Measurement, Standards and Monitoringu at
page 2
76. ibid
77. ibid
78. ibid
79. See Basel Conunittee on Banking Supervision “Enhancing
Corporate Governance for Banking Organisations” February
2006 at page 4
80. C Hadjiemmanuil, Banking Regulation and the Bank of England
Lloyds of London Press 1995 at page 210
81. Basel Committee on Banking Supervision, Principles for
Sound Liquidity Risk Management and Supervision Sept
2008 at page 17 <http://www.bis.org/publ/bcbsl44.htm>
Furthermore, paragraph 57 IughHghts the importance of a
consensus between senior management in relation to a set of
reporting criteria aimed at facilitating liquidity risk monitoring.
Such reporting criteria should specify ““the scope, manner and
frequency of reporting for various recipients (such as the board,
senior management, asset—liability committee) and the parties
responsible tor preparing the reports.” “Reporting of risk mea-
sures should be done on a frequent basis (eg daily reporting tor
those responsible for managing liquidity risk, and at each board
meeting during normal times, with reporting increasing in
times of stress) and should compare current liquidity e.xposures
to established Hmits to identify any emerging pressures and limit
breaches. Breaches in liquidity risk limits should be reported
and thresholds and reporting guidelines should be specified
for escalation to higher levels of management, the board and
supervisory authorities.”
82. Basel Committee on Banking Supervision, Principles for
Sound Liquidity Risk Management and Supervision Sept 2008
<http://www.bis.org/publ∕bcbs 144.htm>
83. ibid
84. “The FSF proposes that the BCBS and CGFS develop a joint
research effort to address funding and Hquidity risk, starting in
2009. A key component of this research agenda is to define
robust measures of funding and liquidity risk, which could assist
assessments of liquidity risk by the private sector. Stress tests to
gauge the probabiHty and magnitude of a Hquidity crisis in dif-
ferent market environments will be considered in this light.” For
further information on this, see Report of the Financial Stability
44 ∙ banking & Financial Services Policy Report
Volume 30 ♦ Number 9 ∙ SeptemberlOII