1, capital adequacy ratio.
Capital adequacy ratio refers to the ratio between the capital held by banking financial institutions and the risk-weighted assets that meet the requirements of regulatory agencies, and is used to measure their capital adequacy ratio. As a risk buffer, capital has the functions of taking risks, absorbing losses and protecting banking financial institutions from unexpected shocks, which is the last line of defense to ensure the safety of banking financial institutions. The degree of capital adequacy directly determines the ultimate solvency of banking financial institutions and their ability to resist various risks. Monitoring the capital adequacy ratio of commercial banks has become one of the working objectives of the CBRC after its establishment. It is reported that the number of major commercial banks with capital adequacy ratio of% in China has increased from 8 in early 2004 to 53 by the end of 2005, and the proportion of assets of banks with capital adequacy ratio up to standard in total assets of commercial banks has increased from 0.6% in early 2003 to 75% by the end of 2005.
2. Risk management
Risk management refers to the whole process of identifying, measuring, monitoring and controlling various risks undertaken by banking financial institutions, such as credit risk, market risk, liquidity risk, operational risk, legal risk and reputation risk. The risk management system of banking financial institutions should include the following four basic elements:
Effective supervision by the board of directors and senior management;
Perfect risk management policies and procedures;
Effective risk identification, measurement, monitoring and control procedures;
Perfect internal control and independent external audit.
3. Internal control
Internal control is a dynamic process and mechanism for banking financial institutions to prevent, control, post supervision and correct risks in advance by formulating and implementing a series of systems, procedures and methods to achieve business objectives. Internal control usually includes the following five elements: internal control environment; Risk identification and assessment; Internal control measures; Information exchange and feedback; Monitor, evaluate and correct.
4. Asset quality
Banking financial institutions shall, in accordance with the requirements of prudent operation and risk management, establish and improve policies and procedures for asset classification, regularly inspect and classify off-balance-sheet assets such as loans, reveal the actual value and risk degree of assets, and truly, comprehensively and dynamically reflect the quality of assets. Banking financial institutions should closely monitor the problem assets, increase the collection efforts, and reduce asset losses.
5. Loss reserve
Banking financial institutions shall, according to the principle of prudent accounting, reasonably estimate the loss of assets, make full provision for all possible losses of assets in time, and improve their ability to resist risks. It is another line of defense for banks to avoid losses outside capital. In some countries, legislation or regulatory authorities have stipulated the mandatory proportion of bad debt reserves, but more countries give banks the power to decide their own bad debt reserves. The regulatory authorities are concerned about whether the determination method and process of bad debt reserves are reasonable, whether the overall level of bad debt reserves is appropriate, and whether bad debts are written off in time.
6. Risk concentration
As the saying goes, don't put your eggs in one basket. Countless bank failures have also fulfilled the truth of this sentence: excessive concentration of risks is one of the biggest hazards of stable and safe operation of banks. When the risk of a bank is excessively concentrated in a borrower, an industry or a country, once the latter encounters repayment difficulties for various reasons, the asset loss of the bank is naturally much greater than that in the case of scattered risks. Therefore, banking financial institutions should limit the risk concentration of a single counterparty or a group of related counterparties and control the risk concentration of a certain industry or region. Banking supervision institutions shall supervise and manage the risk concentration of banking financial institutions, formulate prudential supervision limits, especially for the risk concentration of a single counterparty or a group of related counterparties, encourage them to appropriately spread risks in the course of operation, and prevent losses due to excessive concentration of risks.
7. Related party transactions
Related party transactions of banking financial institutions refer to the transfer of resources or obligations between banking financial institutions and their related parties, including credit granting, leasing, asset transfer, provision of labor services, technology and product transfer of R&D projects, etc. Among them, related credit includes loans, loan commitments, acceptance, discounting, trade financing, letters of credit, guarantees, overdrafts, interbank lending, guarantees, etc. Banking financial institutions provide to related parties. Banking financial institutions should formulate related party transactions management system, conduct internal authorization management on related party transactions, ensure that related party transactions are conducted in accordance with commercial principles, and the conditions are not superior to similar transactions with non-related parties, and limit related party transactions within the prudent limits set by regulatory agencies and themselves.
The State Council Banking Regulatory Authority shall formulate prudent operating rules for commercial banks, including corporate governance, risk management, internal control, capital adequacy ratio, asset quality, loss reserve, risk concentration, related party transactions, asset liquidity, etc. And formulate corresponding prudent operating rules for other banking financial institutions.
We must identify, monitor and control the inherent risks of banking business. Regulators play a key role in ensuring that bank management can do this. An important part of the supervision procedure is that the supervisor has the right to formulate and apply the requirements of prudential supervision to control risks, including capital adequacy ratio, loan loss reserve, asset concentration, liquidity, risk management and internal control. This kind of prudential supervision can be expressed as qualitative or quantitative requirements, and its purpose is to limit banks from increasing risks indefinitely. These requirements should not replace the decision-making of management departments, but set minimum prudential standards to ensure that banks conduct their business in a sound manner. The changing characteristics of the banking industry require regulators to regularly check the implementation of prudential supervision requirements and the application of existing requirements.
legal ground
Banking Supervision Law of the People's Republic of China
Article 21
The prudent operation rules of banking financial institutions shall be stipulated by laws and administrative regulations, and may also be formulated by the State Council Banking Regulatory Authority according to laws and administrative regulations.