At the same time, the advancements in risk measurement in the industry allowed supervisors, when evaluating bank soundness, to rely more directly on information from banks’ own internal risk management systems. Doing so, however,  BIS Review 38/2002  1  necessitates testing these systems, and thus our current model of risk-focused supervision was developed.
At its core, risk-focused supervision is a relatively simple concept: Supervisors are expected to concentrate their efforts on ensuring that financial institutions use the processes necessary to identify, measure, monitor, and control risk exposures. Given the risk profile of U.S. banking organizations, risks are divided into six categories: credit, market, liquidity, operational, legal, and reputational.