Centre for Central Banking Studies

Bank of England
Basic Principles of Banking Supervision
Derrick Ware
Handbooks in Central Banking
no.7
2
Handbooks in Central Banking
No. 7
BASIC PRINCIPLES OF BANKING SUPERVISION
Derrick Ware
Issued by the Centre for Central Banking Studies,
Bank of England, London EC2R 8AH
telephone 0171 601 5857, fax 0171 601 5860
May 1996
Bank of England 1996
ISBN 1 85730 074 2
Also available in Russian as ISBN 1 85730 079 3
3
Foreword
This series of Handbooks in Central Banking has grown out of the activities of the
Bank of Englands Centre for Central Banking Studies in arranging and delivering
training courses, seminars, workshops and technical assistance for central banks and
central bankers of countries across the globe.
Drawing upon that experience, the Handbooks are therefore targeted primarily at
central bankers, or people in related agencies or ministries. The aim is to present
particular topics which concern them in a concise, balanced and accessible manner,
and in a practical context. This should, we hope, enable someone taking up new
responsibilities within a central bank, whether at senior or junior level, and whether
transferring from other duties within the bank or arriving fresh from outside, quickly to
assimilate the key aspects of a subject, although the depth of treatment may vary from
one Handbook to another. While acknowledging that a sound analytical framework
must be the basis for any thorough discussion of central banking policies or operations,
we have generally tried to avoid too theoretical an approach. Moreover, the
Handbooks are not intended as a channel for new research.
We have aimed to make each Handbook reasonably self-contained, but
recommendations for further reading may be included, for the benefit of those with a
particular specialist interest. The views expressed in the Handbooks are those of the
authors and not necessarily those of the Bank of England.
We hope that our central banking colleagues around the world will find these
Handbooks useful. If others with an interest in central banking enjoy them too, we
shall be doubly pleased.
Needless to say, we would welcome any comments on this Handbook or on the series
more generally.
Lionel Price Tony Latter
Director of Central Banking Studies Director for Technical Assistance
and Series Editor
4
BASIC PRINCIPLES OF BANKING SUPERVISION
Derrick Ware
Contents
Page
Abstract............................................................................................... 3
1 Why supervise banks?........................................................................ 5
The role of banks.................................................................................. 5
The nature of banking-inherent instability ............................................. 6
Wider considerations............................................................................. 6
2 General principles of supervision ...................................................... 7
3 Banking risks ...................................................................................... 8
4 Key prudential issues.......................................................................... 9
Capital adequacy .................................................................................. 9
Liquidity............................................................................................... 10
Asset quality......................................................................................... 11
Risk concentration................................................................................ 11
Management ......................................................................................... 13
Systems and controls ............................................................................ 13
5 Basis for an effective supervisory system.......................................... 14
Banking legislation ............................................................................... 15
The supervisory regime......................................................................... 16
Legal and accounting environment ........................................................ 17
6 Off- and on-site approaches ............................................................... 18
Off-site supervision............................................................................... 18
On-site supervision .............................................................................. 19
7 Some reflections on the supervisors task.......................................... 19
8 Concluding remarks ........................................................................... 20
Appendices .......................................................................................... 21
5
ABSTRACT
This Handbook explores some basic principles of banking
supervision. First of all, it addresses the general question of why banks
need to be supervised, and sets out the basic aims of supervision. It then
examines the nature of banking risks. Next, the key areas of prudential
supervision are discussed - namely, capital adequacy, liquidity, asset
quality, risk concentration, management, and systems and controls. The
need for an effective infrastructure for supervision, not least in respect of
the legal and accounting environment, is noted. And the relative
contributions of off-site and on-site supervision are briefly discussed.
The Handbook does not seek to prescribe what any country should
do, or to promote particular national practices (which may be mentioned
by way of illustration). Rather, it seeks to introduce the nature and
concepts of supervision to those for whom the subject may be
comparatively unfamiliar.
6
BASIC PRINCIPLES OF BANKING SUPERVISION
1 Why supervise banks?
Banks and their activities are generally subject to much closer
official supervision than other kinds of businesses; what is it about their
role and nature which justifies this?
The role of banks
The economic and financial life of a country depends on banks in
three important respects.
(a) They occupy a central place in the payments mechanism for
households, government and business.
(b) They accept deposits, which are widely regarded as money;
which are expected to be repaid in full, either on demand or at
their due term; and which constitute part of societys financial
assets.
(c) Banks in market economies play a major role in the allocation of
financial resources, intermediating between depositors of surplus
funds and would-be borrowers, on the basis of active judgements
as to the latters ability to repay. This is in marked contrast to
practice under conditions of central planning, where banks would
typically act merely as passive conduits for the distribution of
funds, without the necessity to make credit decisions.
The primary justification for banking supervision is to limit the risk
of loss to depositors, and by so doing to maintain public confidence in
banks. And while supervision naturally focusses on the individual bank,
supervisors must also be alert to the possibility that problems in one
institution may have wider, systemic repercussions on others, or on the
integrity of the payments system.
7
The nature of banking-inherent instability
The business of banking has a number of attributes which have the
potential to generate instability.
(a) High gearing (or leverage) results from banks financial
intermediation between depositors and borrowers; by comparison
with the generality of industrial and commercial companies, a
banks capital is small in relation to the size of its balance sheet.
Therefore, any loss can have a profound effect on the banks
viability.
(b) Typically, the term structures of assets and liabilities are
fundamentally mismatched, with assets tending to have a longer
maturity than liabilities - again a virtually inevitable consequence
of the role of the banks as intermediaries.
(c) Flowing from these observations, a banks solvency depends on
its ability to retain the confidence of both its depositors and the
financial markets or institutions on which it may rely for funding.
(d) Sometimes, the lack of transparency in published financial
statements hinders, or even defeats, counterparties efforts at
rational analysis of a banks strengths and weaknesses; banks
balance sheets and off-balance sheet positions can change more
rapidly than industrial and commercial companies, and
customers knowledge of their banks is inevitably imperfect.
Wider considerations
Although, as noted above, the focus of supervision is the individual
bank, with the aim of limiting the risk to depositors, the safety and
soundness of the banking system as a whole is so critical to the proper
functioning of the economy, that supervisors must also be concerned
about the possible wider, systemic implications of problems or failures
in individual banks.
8
Systemic consequences may, most obviously, result from a particular
bank itself playing a major or dominant role in national economic life,
including in the payments system. But it also possible for the difficulties
of a small bank to generate systemic problems - if, for instance, depositors
begin to worry about the safety of other banks, thereby precipitating large-
scale withdrawals from sound institutions. And the growing
internationalisation of banking means that such effects may spread across
national boundaries.
Supervisors must be alert to all such possibilities. Sometimes the
concerns may be judged sufficient to prompt some kind of official support
to the banking system. Although such a decision would be for the central
bank and government rather than supervisors alone, the detailed
institutional knowledge of the supervisors would be an invaluable input.
2 General principles of supervision
Underlying the diversity of supervisory regimes and practices which
exist in different countries are some common objectives and judgments.
As objectives, supervisors seek to ensure that banks are
(a) financially sound
(b) well managed, and
(c) not posing a threat to the interests of their depositors
In pursuing these objectives supervisors are trying to form three
judgments
(a) how much risk is each bank undertaking?
(b) what resources are available to manage that risk?
9
The resources may be tangible (eg capital, liquidity) or intangible
(eg quality of management and control systems).
(c) whether the identified level of resources is sufficient to balance
the risk.
Although supervisors need to have some understanding of the markets
and the business environment in which banks operate, they cannot be
expected to know as much as the bankers themselves about the
commercial realities of banking. Anyway, it is not the supervisors role to
make the commercial decisions that are the prerogative of bank
management. Rather, the supervisor monitors and evaluates the overall
strategies, policies and performance of the bank - where appropriate with
reference to specific legal or prudential criteria - and reaches a view as to
the soundness of the bank and the competence of those running it.
3 Banking risks
The risks to which banks are exposed can be categorised thus
(a) Credit risk - the risk that the banks counterparty might not pay
on the due date. Though most often associated with lending,
credit risk arises whenever another party enters into an obligation
to make payment or deliver value to the bank, eg in foreign
exchange or securities transactions.
(b) Liquidity risk - the risk that the bank might itself fail to meet its
obligations when they fall due.
(c) Yield risk - the risk that the banks assets may generate less
income than the expense generated by its liabilities.
(d) Market risk - the risk of loss resulting from movements in the
market price of financial instruments in which the bank has a
position. Such instruments include bonds, equities, foreign
exchange and associated derivative products.
10
(e) Operational risk - the risk of a failure in the banks procedures or
controls, whether from external causes or as a result of error or
fraud within the institution.
(f) Ownership/management risk - the risk that shareholders, directors
or senior management might be unfit for their respective roles, or
actually dishonest.
Any banking risk is heightened if it appears in concentrated form -
for example through large exposures to single or related counterparties,
industrial sectors, countries or currencies.
4 Key prudential issues
Capital adequacy
A banks capital is required as a cushion to absorb losses, which
should be borne by shareholders rather than depositors, and to finance the
infrastructure of the business. The importance of capital adequacy is
indicated by the development of an internationally accepted measure by
the Basle Committee on Banking Supervision
1
in 1988, based on what is
know as the risk asset approach.
This approach defines the elements of capital for supervisory
purposes, allocates weights to different broad categories of asset (eg
government securities, loans to banks, customer advances) and expresses
capital as a percentage of total risk-weighted assets. A simplified
calculation is given in Appendix 1. A minimum result of 8 per cent is

1
The Committee consists of senior representatives of bank supervisory authorities and central
banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, Netherlands,
Sweden, Switzerland, United Kingdom and the United States.
11
widely accepted, though national authorities are free to impose higher
standards on their banks - and often do so.
As originally designed, this approach was only concerned with credit
risk, but at the beginning of 1996 the Basle Committee published
proposals to bring market risks into the calculation of capital
requirements. Countries represented on the Committee are committed to
implementing those proposals by end-1997.
Liquidity
The ability to meet its obligations on time, especially in relation to
repayment of interbank borrowings and customer deposits, is crucial to a
banks reputation and even its continued existence. Banks have actively
to manage liquidity to that end, not least because their prime economic
function of intermediation necessarily entails maturity transformation - for
in general borrowers seek funds of longer term than banks deposit
liabilities.
Banks have three principal ways of arranging their liquidity, usually
employing them in combination.
(a) Holding a stock of readily marketable liquid assets capable of
being turned into cash quickly in response to unforeseen needs.
Supervisors may prescribe which assets may be regarded as
liquid, and require holdings equivalent to some percentage of
total deposits or of those of short maturity.
(b) Using information on the residual maturity of assets and
liabilities to analyse future cash flows, and setting limits on
mismatches or net positions in particular time bands.
Supervisors, too, may set such limits and allow defined liquid
assets to be included in the calculation at a maturity earlier than
their final repayment date to reflect their marketability.
(c) Borrowing in the market to smooth out cash flows by reducing
mismatches in particular time bands. Supervisors may be
prepared to allow the inclusion in liquidity calculations of the
12
undrawn portion of irrevocable and committed standby
borrowing facilities from other banks, but are cautious about the
extent to which it is prudent to rely on such facilities.
Asset quality
The central issue in relation to the quality of a banks assets is the
ability of its borrowers to service and repay loans. Problems with asset
quality are very often a key element in the failure of banks, with losses too
large to be absorbed by capital. In the USA and other countries which
practice detailed on-site examination of banks, the review of individual
loans is a major focus of the process.
Supervisors will expect banks to establish, and adhere to,
documented lending policies. These should specify such items as the
standards which loan applications must meet, credit assessment and loan
authorisation procedures, the regular monitoring of the performance of
each loan, and its periodic review by staff independent of the original
lending officers.
The early identification of problem loans is important if remedial
action is to succeed, and banks may to this end employ grading systems
for loans. Such systems use information on each loan to classify it in the
range from trouble-free to problematic or worse. The numbers of
categories and precise criteria used in the classification process may vary
widely. Some countries, including the USA, assign ratings to individual
loans as part of the examination process in order to evaluate the quality of
banks assets on a consistent basis; a summary of the US ratings appears
in Appendix 2.
Risk concentration
Safeguarding against excessive concentration of risk on individual
counterparties, sectors or countries is a most important component of
prudential supervision - for the greater is the concentration, the larger will
be the potential for loss.
13
The conventional supervisory response is to limit exposures to single
counterparties, or groups of counterparties, to the equivalent of some
proportion of the banks capital base; the European Union, for example,
imposes a limit of 25 percent. In addition, the total of all the banks large
exposures (in the EU case, any exceeding 10 percent of capital) is
constrained to a multiple of capital base.
Two aspects of the control of large exposures merit particular
mention. First, the banks may face practical difficulties in identifying
those exposures which should be aggregated and treated as one for this
purpose, because linkages between borrowers may not always be obvious.
Larger banks may face an additional problem in collating data on
exposures throughout their entire networks.
Secondly, there is the question of exposures to parties related to the
bank itself. Such parties will include shareholders, directors and their
associates as well as subsidiary and affiliated companies of the bank.
There will be concerns that such exposures may be entered into on terms
more favourable than other customers receive, not least when industrial or
commercial undertakings own the bank. For this reason, it is common
practice to subject the totality of exposures to related parties to the same
limit as a single exposure to an unrelated one.
Risk concentration may figure as a concern in other aspects of a
banks business than its assets. For example:
(a) Funding, if individual deposits are large and volatile, or if funds
come from a narrow range of sources.
(b) Profits, if income derives from a small number of transactions or
activities, as opposed to showing diversification.
(c) Product range, if over-specialisation occurs.
(d) Type of collateral, if a high proportion of loans are made against
a particular kind of collateral, a reduction in the value of which
could impact on many otherwise unrelated borrowers.
14
Management
A banks success or failure in large part depends on the experience,
capability, judgment and integrity of its board of directors and senior
executives. Indeed, when banks fail, deficiencies at these levels are
invariably discovered. At the same time, evaluation of management is as
much art as science and involves the making of difficult judgments.
The board of directors should be strong, independent and actively
involved in the banks affairs, particularly in establishing and reviewing
strategy, and monitoring risk and performance. Directors and executives
are responsible for setting, and ensuring adherence to, policies and
procedures covering all aspects of the banks activities. Important in this
is creating an organisational structure in which individual responsibilities
and reporting lines are clear, and effective communication is facilitated.
Systems and controls
The policies and procedures laid down by directors and senior
executives of a bank are intended to control risks, safeguard assets, control
liabilities, and provide accounting and other systems which record all
transactions and commitments in a timely manner while providing
management with reports enabling it to identify and assess the risks of the
business.
In order to be effective, internal controls need to be comprehensive,
clearly documented, periodically reviewed, understood by those involved
in the relevant activities or processes, and enforced. Three fundamental
concepts are of wide application - authorisation, reconciliation and
segregation.
(a) Authorisation refers to the need for senior management to
determine, and policy and procedures manuals clearly to set out,
the extent to which individuals - or sometimes committees - at
various levels of seniority are empowered to commit the bank to
transactions or obligations.
(b) Reconciliation is the comparison of two independently prepared
sets of information which cover the same ground, and should in
15
principle be identical; examples include reconciliation of nostro
account statements with the banks own records, and of dealers
profit and position figures with those generated in the back
office.
(c) Segregation of duties (perhaps the oldest and most fundamental
control in banking) limits the scope for staff fraud by making
successive steps in a process the responsibility of different
individuals or departments; a key example is the complete
separation of dealing activities from the supporting confirmation
and settlement tasks performed in the back office.
The role of an internal audit department is clearly an important
aspect of systems and controls. Supervisors will expect it to have clear
and appropriate terms of reference, independence from line management,
a direct reporting line to the board and to be adequately resourced.
5 Basis for an effective supervisory system
An effective supervisory system rests on: legislation relating to
banking and its supervision; the supervisory regime itself; and an
appropriate legal and accounting environment.
It should be noted that various parts of the financial sector, other
than banks, may also be subject to supervisory regulation of one form or
another. Attention may therefore need to be given to possible overlaps or
gaps in regulation; to questions of consistency and fairness across the
financial sector; and to the justification for any gradations of treatment as
between different classes of institution. This Handbook is, however,
concerned only with the supervision of banks, so does not address those
other issues, important though they are.
Banking legislation
Legislation must first define which institutions are to be regarded as
banks. One approach is to define a bank in terms of taking deposits
16
from the public; another is to do so in terms of taking deposits and
making loans. In either event, unauthorised deposit-taking should be
prohibited and penalties for doing so be laid down. It is for national
consideration whether the law should distinguish between different types
of banks, for example large and small, full service or specialised, and
domestic or foreign.
Banks activities may be confined to those specifically identified in
legislation, or banks may be permitted to engage in any activity not
prohibited by law. Some countries, of which the United Kingdom is one,
licence banks to take deposits, leaving managements to determine on
commercial grounds what other activities to engage in. Others prefer to
licence particular activities separately, for example the provision of
foreign exchange services.
The law should also address the responsibilities and powers of the
supervisory authority. Relevant aspects include:
(a) Minimum licensing criteria, which are likely to include control
over the ownership and management of banks. The criteria will
provide the framework for the ongoing supervision of banks once
licensed, but flexibility in adapting supervision to accomodate
new developments in the banking industry will be assisted by
incorporating only general criteria in primary legislation and
empowering the supervisory authority to issue supporting,
detailed regulations or guidance (probably carrying the authority
of secondary legislation).
(b) The provision of information reasonably required by supervisors
should be a legal duty, accompanied by a duty on supervisors to
safeguard its confidentiality. Circumstances in which the
supervisors may pass such information to others, in particular to
other supervisory agencies at home and abroad, should also be
defined.
(c) Supervisors will require legal powers to enforce their decisions.
Such powers often include the removal of licences and powers to
restrict a banks activities or to direct the bank to adopt certain
courses of action. Some countries also empower the supervisory
17
authority to levy administrative fines on institutions which it
judges to have breached its requirements.
(d) Provision for the supervisory authority to exercise consolidated
supervision over the world-wide activities of banks incorporated
in its jurisdiction has become increasingly important with the
internationalisation of banking. This is so because, following the
issuance of minimum standards by the Basle Committee on
Banking Supervision in 1992, supervisors in a growing number
of countries will refuse to licence branches or subsidiary
companies of banks incorporated in countries whose supervisory
authorities are not capable of performing supervision on a
consolidated basis.
The supervisory regime
It is for national consideration whether licensing and supervision
should be entrusted to the central bank or to some other agency. In either
event, it is most important that the supervisory authority be independent of
political or other outside pressure, so that its decisions can be made on
objective supervisory grounds. It is equally important that there should
be a mechanism by which the supervisory authority is accountable to
government or parliament for the discharge of its duties. Precise questions
concerning the statutory position of the supervisor and the balance
between independence and accountability are, however, beyond the scope
of this Handbook.
Within the statutory criteria, licensing procedures should be rigorous
and carefully applied; supervisors everywhere are conscious that to
licence in haste can be to regret at leisure. Licensing decisions, and
equally those to remove or restrict a licence, should be made in a
framework which pays due regard to natural justice and provides for those
affected to have the right to comment on, and appeal against, adverse
decisions.
Historically, some countries have favoured on-site examination as
the core of their supervisory approach, while others have preferred to
employ off-site surveillance. A growing consensus holds that a
18
combination of these is desirable; section 6 discusses their distinctive
contributions.
Legal and accounting environment
An appropriate legal and accounting framework is essential not only
for effective supervision in a market economy, but also for banks
themselves to serve their economic purposes; this proposition rests on the
underlying presumption that in a market-orientated system private
enterprises can, and do, fail.
The legal framework must deal with:
(a) business organisation - the formation, ownership, rights and
obligations of privately owned enterprise
(b) the ownership of property - and in particular the means by which
banks to whom collateral is pledged by a borrower can register
and, in extremis, enforce their claims
(c) insolvency - the circumstances and manner in which an unpaid
creditor of an enterprise may call for its liquidation, the process
by which that liquidation is to be effected and the priority to be
accorded to different classes of creditors.
Accounting systems must encompass:
(a) an agreed set of accounting standards to be followed by all
enterprises in the preparation of their accounts, facilitating the
resource allocation process - for example, by enabling banks to
undertake informed credit assessments.
(b) independent review and certification of the accounts prepared by
enterprises, undertaken by external auditors
(c) public disclosure of audited financial statements.
19
6 Off- and on-site approaches
As noted earlier, supervisors in different countries have in the past
concentrated either on off-site analysis and review of information
submitted by banks, or on obtaining the information themselves through
on-site inspection. These approaches have increasingly become seen as
complements rather than alternatives, forming a powerful combination
when deployed in a co-ordinated manner. The principal characteristics of
each are discussed below.
Off-site supervision
This involves the receipt, review and analysis of financial statements
and statistical returns submitted to the supervisors. The analysis of this
information facilitates the monitoring of each banks performance and of
its observance of supervisory requirements over time, so that emerging
problems may be identified. The process can thus assist in making the
most effective use of any on-site inspection resources. Comparison of a
banks data and performance with those of its peers can also be
illuminating.
These off-site procedures depend on the timely provision by banks of
accurate information, without which the whole process is flawed from the
outset. An important element in on-site inspection is the verification of
suitable data samples. By its nature, while off-site review and analysis
can readily deal with matters (eg capital, liquidity, large exposures) which
can be quantified, it is less well suited to qualitative issues such as
management strength and operational risks. But one aspect of off-site
supervision, central to the UK approach to supervision, which nevertheless
has much value in relation to these judgmental questions, is the periodic,
wide-ranging interview with an institutions senior management; and of
course one would hope that supervisors and bank management would
maintain close contact with each other outside the formal programme.
On-site supervision
20
Inspection provides an independent check on a banks operations
and condition, as well as enabling off-site supervision data to be verified.
Using a sampling approach, as distinct from one of full audit, inspectors
focus on the banks accounting and control systems, and its adherence to
its own policies and procedures in all aspects of the business, and make
informed judgements about management capabilities.
The limited availability of suitably skilled staff has led some
countries to enlarge the role of external auditors to encompass monitoring
and reporting on supervisory matters; at least one, by contrast, faced with
an undeveloped accountancy profession, has chosen to build on an
existing body of central bank inspectors by transforming their role into
that of supervisors.
7 Some reflections on the supervisors task
The supervisors objective of minimising the risk of loss to
depositors is sometimes interpreted to mean that he should ensure that no
bank ever fails. Such is not the case, for a basic principle of a market-
orientated system is that, while some enterprises thrive, others must of
necessity fail and make their exit. For supervisors to prevent that would
raise the problem known as moral hazard: knowledge that any
mismanaged bank would receive official support would reduce or remove
managements incentive to operate in a prudent manner, and that of
depositors to exercise care in choosing where to place their funds. Nor is
it a supervisors job to take commercial decisions which properly belong
to bank managements, but rather to evaluate the latters performance and
the policies and procedures they put in place.
Some may be tempted to the view that the most effective way of
averting loss to depositors is to prevent banks taking any risks. Such a
view misunderstands the essential nature of banking, which leads banks to
run the risks outlined in Section 3 above if they are to provide the services
of money transmission and financial intermediation which are their
distinctive contribution to the market economy. The supervisors concern
21
is that bank managements should identify, understand, monitor and
control such risks - for the biggest risk is the one that management has yet
to identify or understand.
8 Concluding remarks
This Handbook has not sought to put forward a blueprint for
supervision, but to identify principles and issues. There is widespread
agreement on its objectives, the aspects of banks and banking on which it
should focus and, in some important areas, standards and methodologies.
But national supervisory regimes inevitably vary according to countries
history, legal and cultural environment, as well as the size, structure and
range of activities of their banking industries.
* * * *
22
Appendix 1
RISK ASSET RATIO - simplified illustration
A Balance sheet (eg $million)
Liabilities
Common equity 8
Retained earnings 2
Capital 10
Deposits 190
200
Assets
Cash 20
Due from banks 50
Home mortgages 30
Other loans 100
200
B Risk asset ratio
1. Capital base = 10
2. Weighted risk assets
- Cash (zero weight)
- Due from banks (20% weight)
- Home mortgages (50% weight)
- Other loans (100% weight)
3. Risk asset ratio
- defined as:
(capital base) (weighted risk assets)
= 10 125 = 0.08 ie 8%
20 x 0.00 = 0
50 x 0.20 = 10
30 x 0.50 = 15
100 x 1.00 = 100
-----
Weighted sum = 125
23
Appendix 2
US ASSET RATING SYSTEM
Pass (non-criticised)
- Reasonable (ie acceptable) credit risk
- Payments (eg of interest) are current
- No evident adverse trends affecting borrowers present or
prospective ability to repay
Special mention (some deficiency or potential problem identified)
- Adverse trends or characteristics
- Credit risk relatively minor, yet higher than normally
acceptable
Substandard
- Clearly-defined credit weaknesses
- Bank may suffer some loss if deficiencies are not promptly
corrected
Doubtful
- Collection in full is highly questionable
- Possibility of significant loss (though not readily defined) is
extremely high
Loss
- Uncollectable
24
Handbooks in this series
No Title Author
1 Introduction to monetary policy Glenn Hoggarth
2 The choice of exchange rate regime Tony Latter
3 Economic analysis in a central bank:
models versus judgment
Lionel Price
4 Internal audit in a central bank Christopher Scott
5 The management of government debt Simon Gray
6 Primary dealers in government securities
markets
Robin McConnachie
7 Basic principles of banking supervision Derrick Ware
8 Payment systems David Sheppard
9 Deposit insurance Ronald MacDonald
10 Introduction to monetary operations Simon Gray and
Glenn Hoggarth