The Centrale Bank van Curaçao en Sint Maarten (CBCS) recently issued the three core guidelines for the credit institutions’ sector: the Guideline for the Sound Management of Liquidity Risk, the Guideline for the Sound Management of Credit Risk, and the Guideline for Sound Stress Testing Practices. Credit institutions are expected to observe the guidelines and apply these in their daily operations.
• The Guideline for the Sound Management of Liquidity Risk provides guidance to credit institutions to proactively manage and monitor liquidity risk.
• The Guideline for the Sound Management of Credit Risk includes principles for the sound management of credit risk associated with the implementation and ongoing application of overall credit risk practices by credit institutions.
• The Guideline for Sound Stress Testing Practices offers guidance on stress testing, which has become paramount after the global financial crisis, and institutions should perform stress tests to assess how their capital and liquidity might be affected by changing business conditions.
CBCS developed these guidelines as part of the implementation of Pillar 2 of the Basel II/III capital framework and the enhancements to Pillar 1 introduced by Basel III, as set by the Basel Committee on Banking Supervision (BCBS)1. The Basel Framework is the full set of standards of the BCBS.
Implementation of Pillar 2 will allow improved assessment of capital adequacy in relation to the material risk exposures of individual credit institutions and is imperative for capturing and managing risks that are not covered (or not fully captured) in Pillar 1 and necessary for CBCS to evaluate risk assessments of credit institutions, their capital needs and intervene where necessary.
The enhancements to Pillar 1 introduced by Basel III are internationally agreed set of measures developed by the BCBS in response to the financial crisis of 2007-09. The measures aim to strengthen the regulation, supervision, and risk management of credit institutions.
The different representative organizations of the credit institutions’ sector were consulted on these guidelines, which led to various constructive discussions and feedback. At a later stage, the guidelines will be issued as general binding provisions (“algemeen verbindende voorschriften”).
The guidelines are published on the CBCS website and can be accessed through the following link
https://www.centralbank.cw/legislation-guidelines/credit-institutions/guidelines.