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The regulation on credit institutions is standardized by a law regulating banking in the WAEMU zone[1]. This new banking law, which entered into force in April 2010, makes a distinction between banks and banking financial institutions, but gives them a common name: “credit institutions”. Article 4 of this new banking law on credit institutions specifies that banking financial institutions are authorized to carry out the banking operations for which they are authorized. They are classified, by instruction of the Central Bank, in various categories according to the nature of the bank operations that they are authorized to carry out. For greater certainty, section 6 considers credit transactions for the purposes of this Act to be “any act by which a person, acting for valuable consideration: Makes or promises to make funds available to  someone; takes, in the interest of the latter, a signature undertaking such as an endorsement, a bond or a guarantee. Are treated as credit operations, leasing and, in general, any lease transaction with an option to purchase. “ Article 56 of the Framework Law provides, inter alia, that the WAMU Council of Ministers is empowered to make all provisions concerning: 1) the respect by credit institutions of a relationship between the various elements of their resources and uses or the respect of ceilings or minimums for the amount of some of their uses ; 2) the conditions under which credit institutions may take participations ; (3) the management standards that credit institutions must meet in order, in particular, to ensure their liquidity, solvency, the division of their risks and the balance of their financial structure. In addition, Article 59 provides that “Credit institutions may not oppose the controls carried out by the Banking Commission and the Central Bank in accordance with the provisions in force in the territory of (). “ It is clear that the framework law regulating the banking activity in the WAEMU zone itself lays the foundations for the control that should be exercised by the various institutions and bodies (Council of Ministers, BCEAO, Banking Commission, Ministers of Finance) on the institutions in the Union space, basically because of its importance in the growth and stability of the subregional economy. Added to this is a major fact linked to an increasingly strict international regulation of banking activity and in particular credit policies. This situation stems directly from the 2008 financial crisis, the origin of which was an imprudent and uncontrolled credit policy that jeopardized deposits received from third parties by banks. In all the countries affected by the financial crisis, the states have been forced to play their sovereign role of guarantor of last resort. Indeed, the weakness of our economies calls for more caution because a cure in such circumstances would be highly more destructive to the economic fabric here than it has been elsewhere. It is in this context that the entry into force on 1 January 2018 of a new prudential regulation resulting from the transposition of Basel II and Basel III standards[2]. This new situation calls for a change in the banks’ approach to strengthening the financial system and the soundness of credit institutions. Indeed, these last rules, which come in addition to those previously practiced by the supervisory authority namely the BCEAO, concern:
  • Solvency that is credit risk, market risk, operational risk;
  • The monitoring system that each bank must implement to monitor risks and to know at all times its exposure and its position with regard to capital ;
  • And finally, a market discipline, by requiring banks to communicate financial information.
More generally, the BCEAO conducts its policy of macro prudential supervision consisting in measuring, evaluating and limiting the systemic risk, ie the risk of a major failure in the provision of financial services with serious consequences for the real economy[3]. Reforms undertaken in recent years have improved the systemic risk monitoring framework to strengthen the resilience of WAMU’s financial system. With regard specifically to the WAMU banking sector, the current systemic risk monitoring system relies in particular on : • The financial soundness indicators (FSIs) of the banking sector, which are characteristic ratios of health and the soundness of the banking system. The  establishment of these indicators by the International Monetary Fund is the result of various banking and financial crises and the need to strengthen macro prudential supervision systems in the States. In the context of the preservation of the financial stability of the Union, the BCEAO prepares and monitors the financial soundness indicators of the banking sector;
  • Bank stress tests or stress tests, which assess the capacity of a credit institution or banking system to cope with severe shocks, simulated through extreme scenarios that may occur. The BCEAO is also assessing the resilience of the banking sector through the implementation of this tool[4].
Several reforms are also underway to improve the regulatory framework of the WAMU financial system. These include projects relating to the adoption of macro prudential supervision indicators for the banking and financial sector, the identification of systemically important banking institutions, the consolidated supervision of banking groups and the supplementary supervision of financial groups. In this perspective, and in application of the Basel II and Basel III rules, various texts have been adopted at the WAMU level which all contribute to the achievement of the objective of securing and stabilizing the financial sector. These are mainly: -The Decision n ° 013-24-06 CM UMOA relative to the prudential device applicable to the Credit Institutions of June 24, 2016 whose architecture rests on the following three complementary pillars: (a) the first pillar (Titles I to X) covers minimum capital requirements based on risk (credit, operational, market), in accordance with the Basel III rules. It also discusses prudential standards related to minimum capital requirements, including risk division and leverage ratio ; (b) the second pillar (Title XI) defines the main principles of prudential supervision and the related intervention framework; (c) the third pillar (Title XII) sets out the guiding principles governing market discipline. It aims to strengthen the transparency and communication of institutions vis-à-vis the public about their exposure to risks. The new scheme also establishes prudential requirements for liquidity (Title XIII). The latter set out the minimum standards applicable to institutions, in accordance with the recommendations issued by the Basel Committee. Certain provisions of this prudential framework are specified by instructions from the BCEAO or by circulars of the Banking Commission of WAMU. -Decision No. 013/24/06/2016 / CM / UMOA on the prudential framework applicable to Credit Institutions and Financial Companies of the West African Monetary Union (WAMU) which adopts the prudential mechanism applicable to credit institutions and entrusts the implementation to the Central Bank and the WAMU Banking Commission. -Decision No. 014124/06/2016 / CM / UMOA on the consolidated supervision of the Maisons-Mères credit institutions and the financial companies in the WAMU. Consolidated supervision is the process by which a supervisory authority monitors risk exposure and capital adequacy, assists the liquidity of a banking group subject to its control, on the basis of the totality of its activities group within and outside its jurisdiction. Article 8 of this Decision provides that financial companies are subject to management, prudential, internal and external controls as well as reporting requirements which are specified by WAMU Council of Ministers Decision, Circular of the WAMU Banking Commission or Central Bank Instruction. Financial companies and their managers may be subject to corrective measures and administrative and / or disciplinary sanctions provided for in the Appendix to the WAMU Banking Commission Convention. Article 9 completes the provision by providing that the WAMU’s Supervisory Authority may take specific measures applicable to taxable persons, including the imposition of restrictions on their activities and the modification of their structure. As such, the Banking Commission is empowered to : – to limit the scope of activities that a taxable person may undertake and the courts on which he conducts them, where he considers that:
  • the safety and soundness of the taxable person is threatened by these activities, which expose him to excessive risk or are not properly managed;
  • the control exercised by other supervisory authorities is not satisfactory considering the risks involved;
  • it is prevented from exercising effective control on a consolidated basis.
– not to authorize capital or organizational structures which hinder the obtaining of consolidated financial data or otherwise hinder the effective supervision of a group. Notwithstanding these measures, the Banking Commission may, depending on the circumstances, apply to the taxable persons, on a consolidated basis, any other preventive measures it deems appropriate. The main purpose of prudential supervision of credit institutions is to improve the financial communication of banks. For example, bank managers are encouraged to disclose more information, and the release of information can significantly reduce the risk of lax lending[5]. This is the essence of the new Basel II and Basel III rules.