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Evolution of Regulation and Supervision
Why do banks require special supervision compared to other industries?
Fiduciary nature: banks accept others' money and must honour demand withdrawals; failures cause contagion and payment system disruption.
Name three layers of damage caused by bank insolvency.
Direct depositor loss, loss of confidence causing contagion runs, disruption of payment system affecting real economy.
What event triggered formation of Basel Committee on Banking Supervision in 1974?
Herstatt Bank collapse exposed settlement risk across time zones, necessitating international supervisory coordination.
When was CAMEL extended to CAMELS and what was added?
1996; added 'S' for Sensitivity-to-Market-Risk element to original five-pillar framework.
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