OBJECTIVES OF BANKING REGULATION AND SUPERVISION
The primary focus of banking regulation and supervision is to ensure the optimum functioning Indonesia»s banking system as:
- An institution of public trust in respect of funding and disbursement of funds;
- An institution for implementation of monetary policy;
- An institution contributing to economic growth and equity;
With the aim of creating a sound banking system (both overall and in terms of individual banks) capable of safeguarding the public interest, achieving sound growth, and contributing in a useful capacity to the national economy.
To achieve these objectives, the approaches used are as follows:
- Prudential banking; and
- Self-regulatory banking, in which banks consistently implement their own internal regulations for operational activities within the overall guidelines of prudential principles.
:: Scope of Bank Regulation and Supervision
Right to license, comprising the right to establish procedures for the licensing and establishment of a bank. The scope of licensing by Bank Indonesia includes issuance and revocation of operating licenses for banks; issuance of licenses for establishment, closure, and change of address of bank offices; approval of bank owners and management; and issuance of licenses for banks to conduct certain business operations.
Right to regulate, comprising the right to establish regulations governing banking operations and activities for the purpose of fostering a sound banking system capable of delivering banking services as desired by the public.
Right to control, comprising the right to supervise banks. Bank supervision takes place through on-site supervision and off-site supervision. On-site supervision may take the form of general examination and special examination aimed at obtaining a picture of the financial condition of the bank, monitoring the level of bank compliance with prevailing regulations, and ascertaining whether the bank is involved in any unsound practices that may jeopardize the sustainability of bank operations. Off-site supervision is supervision through periodical reports delivered by banks, examination reports, and other information. If it becomes necessary during the implementation of supervision, Bank Indonesia may conduct examination of other parties, including parent company, subsidiaries, connected parties, affiliated parties, and bank debtors. Bank Indonesia may assign another party to conduct examination on behalf of and in the name of Bank Indonesia.
Right to impose sanctions in accordance with laws and regulations in the event that a bank is not fully compliant or is in non-compliance with regulations. Such actions contain elements of guidance to encourage banks to operate in compliance with sound banking principles.