Excerpt from the forthcoming Annual Survey of Israel’s Banking System:

 

The Supervisory Methodology for Assessing Risks in the Banks


  • The Banking Supervision Department (“the BSD”) regularly performs a long series of activities to examine, control, monitor, and assess risks in the banks. These activities are performed by all the BSD’s divisions throughout the year.
  • The BSD additionally conducts a structured, comprehensive Supervisory Review and Evaluation Process (SREP), according to the guidelines of the Basel Committee on Banking Supervision (BCBS), and which is in line with similar processes conducted by leading supervisory agencies worldwide.
  • In the SREP, BSD economists assess the risks inherent in the banks’ activities and the quality of the banks’ risk management; their main corporate governance functions; and adequacy and quality of their capital. This process conforms to an orderly methodology based on specific risk/score cards.
  • The SREP has several primary aims: (1) Where necessary, to determine revised capital requirements for a bank, i.e. capital requirements in addition to the general regulatory capital requirements, to function as a cushion designed to absorb unexpected losses and improve the bank’s stability; (2) To define the actions that a bank should take to reduce its risks and correct its processes; (3) To update the risk-based supervisory work plan.
  • As a result of the large number of monitoring and supervisory processes, including the SREP and other actions described in this box, the banks improve their risk management, strengthen their corporate governance, and are better prepared for loss events or periods of crisis. These improvements are achieved against the backdrop of, among other things, the BSD’s requirements and its early intervention when a need is identified by its monitoring and examination activities.​ 

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