Macro prudential supervision; Smart, proactive and risk-based by reviewing the law of the Central Bank of the Islamic Republic of Iran

Bank supervision, due to its close link with financial stability, is one of the most important topics in the monetary and banking sector. Banking supervision is broadly divided into microprudential and macroprudential supervision. These two types differ in their proximate objective, ultimate objectives, model of risk, and the relationships between institutions. In the new law of the Central Bank of the Islamic Republic of Iran, although the banking supervision sections have been strengthened, the most significant weakness of this law is the lack of attention to macroprudential supervision. The suggestion in this research to enhance the Central Bank’s supervisory capability is a smart, proactive, and risk-based macroprudential supervision model. This would allow various intra risks to be predictable, monitored, and tracked, so that these risks and their origins can be identified before they occur and incur costs for the country’s economy (such as reducing Gross Domestic Product). In this model, the relationships between banks and customers, as well as a network and graph perspective on identifying endogenous risks that could cause systemic risk and instability in the banking and financial network, are mentioned as key components of macroprudential supervision. An analytical example of the proposed model based on the financial statements of some state-owned and privatized banks for the year 1401 is also presented.