The banking system plays a central role in every country. The public deposits most of its monetary savings in the banks, and the banks, among other things, use that money to give credit to businesses and households. The public's bank accounts are used to implement a major part of payments made in the economy, and activity in foreign currency also takes place mainly via the banks. The need to regulate and supervise the banking system arises from the vital role that the system plays, from the recognition that the public's money must be protected, and the fact that a failure in the system is likely to have a severe impact on the functioning of the economy and those who deposited their money in the banks.
The functions of the Banking Supervision Department
- Supervising the stability of the banking corporations––avoiding excess risks to their stability
and protecting depositors' money;
- Ensuring that the banking corporations are managed properly;
- Maintaining fairness in bank/customer relations
A bank's activity is subject to rules and limitations in the area of proper management and risk control––rules regarding the structure of the board of directors and how it operates, adequate capital requirements taking into account the extent of the bank's risk-weighted assets, restrictions on the maximum size of loan that can be given to a single borrower and to parties with connections with the bank, etc.