SBP takes supervisory enforcement actions against those institutions that fail to comply with legal or regulatory requirements. These actions may range from imposition of penalties, administrative & financial sanctions and reference to concerned law enforcement/prosecution agencies.
The enforcement actions depend upon the nature, severity and continuity of regulatory breaches and risks posed to the institution and may range from mild to severe. The nature of intervention or corrective actions also takes into consideration behavior and ability of the institution’s management and sponsors, and the previous record of dealing with deficiencies. Supervisory enforcement actions, inter alia, include meetings with the relevant Key Executives, Chief Executive or Board of Directors of the institutions by SBP’s team.
In the mild supervisory and enforcement actions, SBP advises the institution to submit Commitment Letter, Board Resolutions /Undertaking in which management/Board of the institution resolves to correct the identified deficiencies or weaknesses within a given time.
The failure to implement corrective actions by the institutions leads to initiation of severe corrective measures. Severe actions may include:-
- Following any particular policy in relation to advances, deposits etc
- Maintenance of higher level of liquid assets
- Increasing the capital level by a specified amount
- Removal of any key executive/ board of directors
- Reconstruction/amalgamation of the institution
- Cancellation of the license
- Winding up the institution through High Court
The guiding principles for resolution of problematic institutions include early identification of the problems, early intervention, cost-efficiency, objectivity and consistency of criteria, avoidance of moral hazard, and transparency. Over the years, SBP has resolved banking crisis and failures through the option which provides the greatest safeguard of depositors’ interest.