This section provides fundamental information about the procedures applying to the supervision of banks, credit unions and investment firms, reflecting the requirements of Directives 2006/48/EC and 2006/49/EC.
The recommendations of the EBA in this area are contained in the " Guidelines on the Application of the Supervisory Review Process".
Performance of Supervision under Basel II
Under Article 144 of Directive 2006/48/EC of the European Parliament and of the Council relating to the taking up and pursuit of the business of credit institutions, the Czech National Bank as a competent supervisory authority is obliged to publish the general criteria and methodology it will use in the supervisory review process (SRP) under the Basel II framework.
Supervisory review process is a continuous process which in its narrower form – Pillar 2 of the Basel II framework – is called the “supervisory review and evaluation process” (SREP). Supervisory review and evaluation process is an activity where a supervisory authority each year reviews and evaluates the risk profile of an institution in relation to the adequacy and reliability of the institutions´ internal capital adequacy assessment process (ICAAP).
In its supervisory review and evaluation process, the Czech National Bank will follow the recommendations of the Committee of European Banking Supervisors, published on the EBA website as the “EBA Guidelines on the Application of the Supervisory Review Process under Pillar 2”.
The core of the CNB’s supervisory activities will involve determining that an institution identifies risks and risk factors on an ongoing basis, determines their significance, manages each significant risk or risk factor on an ongoing basis, and ensures adequate capital coverage or coverage in other ways for those significant risks or risk factors. This requires regular assessment of the position of the institution and the taking of measures to eliminate any problems on an ongoing basis.
To analyse the degree of risk, CNB Banking Supervision will conduct:
- a regular (at least annual) overall assessment of the risk profile and overall position of each institution,
- a matrix assessment of the institution’s risk profile, including an assessment of all significant risks and the management and control systems of the institution by individual activities,
- an assessment of the ICAAP of each institution to ensure that institutions reflect any risks not covered by Pillar 1 in their internal risk profile assessments,
- a dialogue with the institution covering any inconsistency between its ICAAP and the overall assessment of the institution by the supervisory authority.
For supervisory disclosure purposes, the Committee of European Banking Supervisors (EBA) identified four conceptual building blocks of supervisory activity that constitute the core of the SREP. They are common to all competent authorities (see Table of Information):
- Scope of application of SREP (including proportionality)
- Individual Risk Assessment
- Review and Evaluation of ICAAP
- Overall assessment and supervisory measures
For an overview regarding the general criteria and methodologies used in each EU Member State in the review and evaluation process see the corresponding section on the EBA homepage.