Although the importance of particular roles banks play in an economy may differ significantly across countries and change over time, their key role in the financial system and their influence on the national economy are beyond dispute. For this reason, and in view of the specific nature of their business, which includes the taking of deposits and other repayable funds from the public, banks and other credit institutions operate under a strict regulatory framework and are subject to supervision and oversight by competent authorities.
The established regulatory framework of the banking system in the Republic of Croatia, which is aligned with the uniform regulatory framework in the EU, the harmonisation of which is supported by the European Banking Authority (EBA), lays down specific rules for all key segments of credit institutions' operations. In the context of the contribution to the stability of the financial system as a whole, which is one of the important tasks of the Croatian National Bank, the prudential regulatory framework has been established, consisting primarily of Regulation (EU) No 575/2013 on capital requirements and the Credit Institutions Act (by means of which Directive 2013/36/EU or "the Capital Requirements Directive" is transposed into Croatian law). Among other things, these two acts specify responsibilities of credit institutions and rules for effective risk management, the amount and quality of capital to cover losses arising from risks, and public disclosure requirements aimed at improving market discipline, which provides a primary level of protection from financial crisis and is a prerequisite for sustainable economic growth. The main objectives of supervision exercised by the Croatian National Bank is to maintain confidence in the Croatian banking system, and promote and safeguard its safety and stability.
In the course of supervision, the Croatian National Bank verifies the legality of the credit institution's operation, including the organisational structure, strategies, policies, processes and procedures adopted by the credit institution to comply with regulations and evaluates:
a) risks to which the credit institution is or might be exposed;
b) risks that the credit institution poses to the financial system taking into account the identification and measurement of systemic risk under Article 23 of Regulation (EU) No 1093/2010, or recommendations of the European Systemic Risk Board, where appropriate; and
c) risks revealed by stress testing taking into account the nature, scale and complexity of a credit institution's activities.