Optimal regulation of banking system’s advanced credit risk management by unified computational representation of business processes across the entire banking system

Abstract

The impetus for this paper came after the financial crisis of 2007-2008, its global consequences and specifically how incomplete information "information asymmetry" between local banks and regulators extremely affected the banking sector. Financial institutions and regulators are-from a technical point of view-not yet fully integrated and standardised. The inaccuracy in banks' data and the long (quarterly) intervals between reports to the regulators leads to delayed interventions by local supervisory regulators. Most regional banks use an internal ratingsbased approach (IRB) that allows them to use their own methods to calculate credit risks, which makes it difficult for regulators to verify and validate the banks' data without a standardised procedure and the benefit of fully automated connectivity for the regulatory reporting system through sophisticated IT tools. The importance of this issue, for the central banks, motivates the researcher to investigate and seek technology solutions in the interests of maximising the technical efficiency of the regulatory banking system. This paper is focused on the banking regulatory reporting system that uses IRB approach to evaluate credit risk. Due to the importance and the sensitivity of IRB approach on the banking credit risk assessments, a case study is examined and a tailored regulatory reporting system framework is proposed. The proposed framework integrates a private cloud computing network with standardised, automated and integrated features that would provide regulators and practitioners with a new method to enhance the regulatory reporting system.

Proactive Management of Regulatory Policy Ripple Effects via a Computational Hierarchical Change Management Structure

“…Further, this paper extends the work by (Alrabiah 2018) that proposes a standardisation and integration framework to ideally and proactively regulate the banking system. Also, the paper uses Also for the regulated-entities, there are different objectives, setups, technology infrastructure and constraints dynamics that induce policy complexity to deal with the generic policy implementations (FSB, Financial Stability Board 2017;IFC 2019;Neuberger and Rissi 2012;Parker and Kirkpatrick 2012).…”

“…Further, this paper extends the work by (Alrabiah 2018) that proposes a standardisation and integration framework to ideally and proactively regulate the banking system. Also, the paper uses the HCMS framework proposed by (Alrabiah and Drew 2018b).…”

“…These impediments were mostly due to the incapability of the regulators' technological tools to monitor and assess banks' risk instruments (Alrabiah 2018). Thus, by strengthening supervision and control over other financial institutions, based on the new policy framework, CBs are likely to foster the stability of the financial market (Ayadi 2019;Broeders and Prenio 2018;Jerger 2002).…”

“…Central banks (CBs)/regulators, these terms will be used interchangeably or together in this paper whenever this does not create ambiguity, strive to adopt effective mechanisms to improve the regulation policy systems of their financial institutions (Alrabiah 2018;Capano and Woo 2017;IFC 2019;IMF 2017;Stiroh 2019). They operate and manage their tasks to keep the economy in good health and create the right set of policies to regulate the economy (Goodhart 2011;IFC 2019;Wagner 2010).…”

RegTech in public and private sectors: the nexus between data, technology and regulation

“…The financial sector is the natural candidate for RegTech, as it is a heavily regulated industry. RegTech is well-suited to sub-sectors ranging from banking and the payments and securities market to lending, trading and insurance (Alrabiah, 2018;Arner et al, 2017a;Bonson et al, 2010;Buckley et al, 2020;EIOPA, 2020). The array of RegTech-backed solutions underlines its potential for intermediaries, regulated entities (Buckley et al, 2020;Micheler & Whaley, 2020) and the many firms that, in general, must provide regulatory data (FCA, 2016), given the broad spectrum of regulations that fall within the scope of RegTech.…”