Bank regulation and supervision

Bank regulation and supervision refers to a form of financial regulation which subjects banks to certain requirements, restrictions and guidelines, enforced by a financial supervisory authority or supervisor, with semantic variations across jurisdictions. By and large, bank regulation and supervision aims at ensuring the stability of the banking sector and at fostering transparency between banks and the individuals and other counterparts with whom they conduct business.

Its main component is prudential regulation and supervision, whose aim is to ensure that banks are viable and resilient ("safe and sound") so as to reduce the likelihood and impact of bank failures that may trigger systemic risk. Prudential regulation and supervision requires banks to control risks and to hold adequate capital as defined by capital requirements and add liquidity requirements, the imposition of concentration risk (or large exposures) limits, and related reporting and public disclosure requirements and supervisory controls and processes. Other components include supervision aimed at enforcing financial consumer protection, sometimes also referred to as conduct-of-business (or simply "conduct") regulation and supervision of banks, and anti–money laundering supervision that aims to ensure banks implement the applicable AML/CFT framework. Deposit insurance and resolution authority are also parts of the bank regulatory and supervisory framework. Bank (prudential) supervision is a form of "microprudential" policy to the extent it applies to individual credit institutions, as opposed to macroprudential regulation intended at the financial system as a whole.

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