Financial Services
Supervision of financial institutions
Supervision of large, complex, international banks is undergoing a fundamental, global transformation. In the interests of safety and soundness, regulators in major markets are ramping up their engagement.
There is a consensus emerging regarding key features of supervisors' new approach. It will include a broader scope of analysis, greater engagement with management and board, and in many cases, a willingness to intervene earlier based on judgments.
The supervisors' aim is to develop a more complete picture of financial institutions and their risks. They seek to gain an "insider's insight" via a process of "triangulation," starting at the top with an improved dialogue with the board and management, then moving down to the businesses, risk management, and control functions. Supervisors will be seeking insight into strategy and competitive positioning, business models, risk appetite, and risk management and culture.
This evolving supervisory approach presents challenges. Supervisors will need enough experienced people to interact at senior levels within financial institutions on complex strategic issues. Trust must develop to allow for candid discussion and information sharing. But both supervisors and financial institutions have an interest in getting this right. As one regulator put it: "Don't [we] all have an interest in building strong global financial institutions? We need to work together." Supervisors can benefit from non-executive director counsel and support.
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