In many countries, central banks or bank superintendences operate public credit registries (PCRs). PCRs are databases with detailed information of the credits granted by financial intermediaries<sup>6</sup> created to support bank regulation and supervision. On occasions they also participate actively in the credit information market by providing data to creditors (namely banks) and credit bureaus.<sup>7</sup> The degree of interaction and involvement with other CRS<sup>8</sup> players (e.g. financial institutions, other credit providers and credit bureaus) varies from country to country. It heavily depends on the institutional and legal arrangements that support their operation and on the idiosyncrasy of the local credit markets.

Besides its role in improving creditors’ risk assessment and in facilitating access to finance, credit information is also an important tool for bank supervisors and regulators as watchdogs of financial stability. One of the many lessons this crisis has painstakingly taught is the paramount importance that supervisors regularly and thoroughly monitor banks’ risk exposure (i.e. at least on a quarterly basis). Being able to evaluate the credit risk of borrowers in the financial system gives important information to monitor the quality of banks’ portfolios and to shape the prudential regulation.

This paper is about the importance of the information in PCRs for supporting and improving banking sector regulation and supervision. Bank on-site examinations and off-site monitoring can be more efficient and effective when supervisory authorities have direct access to credit data, and hence can avoid relying exclusively on bank internal databases and regulatory reports. The fact that PCR databases contain individual credit information on borrowers makes it possible to implement advanced techniques that measure banks’ credit risk exposure. It also allows optimizing the prudential regulation ensuring that provisioning and capital requirements are properly calibrated to cover expected and unexpected losses respectively.

PCRs will play a role in the adoption of the new International Regulatory Framework for Banks (Basel III). The foundations laid down in Basel II remain – to a large extent – unchanged.<sup>9</sup> In regards to minimum capital requirements, Basel II introduces model based approaches for credit risk<sup>10</sup> (Pillar 1) and requires a thorough assessment of

> 6 In some countries, financial institutions outside the scope of the central bank or bank superintendency regulation report their data to the public credit registries as well. For example, in Argentina many credit cards issued by retail stores are reported to the public credit registry operated by the Central Bank of Argentina.

> 7 It is not the purpose of this paper to analyze the role of PCRs in the credit information market or its implications for the dynamics of the (private) credit bureau industry. While the former has been much analyzed in the literature on credit information sharing, the latter is to a large extent an unexplored field (perhaps with the exception of Negrin (2001), who presents an analysis on the complementarities between credit bureaus and public credit registries).

> 8 Credit and loan reporting systems are “...the broader institutional framework for credit reporting in an economy including existing public and private credit registries, collateral registries, judicial records, etc., and the legal and regulatory framework for credit reporting, privacy and consumer protection” (WHCRI (2005)). Credit reporting, in turn, refers to the sharing of positive and negative information of individuals and firms relevant for making credit decisions.

> 9 In July 2009 the BCBS introduced a series of amendments to Basel II, which in particular strengthened the treatment of securitizations, both in the banking and in the trading book. See BCBS (2009a) and BCBS (2009b).

> 10 As well as for operational risk, which is outside the scope of this document.

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