Licences are necessary for a sound and stable banking system.
The main objective of the process is to limit the number of bank failures and minimise systemic risk.
But a number of problems are avoided if the first filter blocks out undesirable elements.
Licensed institutions are subject to permanent supervision — to guarantee protection of public's savings.
Licences should not lead to a monopoly or be a deterrent to competition.
The Supervisory Authority should have discretion and power to reject banking licences to high-risk institutions.
(Source: From a 2009 study on ‘Authorisation of Bank Licenses', from The Association of Supervisors of Banks of the Americas (ASBA) .