## It’s Hip to Be Square—Why Good Financial Sector Supervision Is Important

_IMF Blog, May 27, 2010_

## Source details

**Canonical URL:** [It’s Hip to Be Square—Why Good Financial Sector Supervision Is Important](https://www.imf.org/en/blogs/articles/2010/05/27/its-hip-to-be-square-why-good-financial-sector-supervision-is-important)

## Other formats

- [Markdown version](/en/blogs/articles/2010/05/27/its-hip-to-be-square-why-good-financial-sector-supervision-is-important/index.md)
- [Structured JSON version](/en/blogs/articles/2010/05/27/its-hip-to-be-square-why-good-financial-sector-supervision-is-important/index.json)
- [Bundle manifest](/en/blogs/articles/2010/05/27/its-hip-to-be-square-why-good-financial-sector-supervision-is-important/bundle-manifest.json)

## Bibliographic details
- Authors: JosVials
- Published: May 27, 2010

---

### Summary and context
- Author: José Viñals
- Date: May 27, 2010
- Context: IMFBlog post arguing that effective financial supervision was a key differentiator during the global financial crisis and that strong supervision merits support from politicians and other stakeholders.
- Institutional note: The IMF is an organization of 191 countries.

### Core argument
- Financial supervisors often receive little praise but played a critical role during the global financial crisis; countries with the same rules had very different crisis experiences, and one reason was “better supervision.”
- “It’s hip to be square!”—the post asserts that rigorous, rule-based supervision is valuable and sometimes underappreciated.
- The supervisor’s role spans an institution’s lifecycle: license, monitor, set rules, guide, penalize, and intervene when failures occur—acting as “midwife, parent, mentor, cop, judge, and undertaker—all rolled into one.”

### Five key factors that make a good supervisor
- Intrusive: “having an intimate knowledge of the supervised entity—in short, stick your nose in, and know what’s going on.”
- Proactive: requires skepticism; supervisors must question industry direction and actions even in good times.
- Comprehensive: “leaving no stone unturned,” with vigilance about activities at the edge of the regulatory perimeter.
- Adaptive: keep abreast of “new products, new markets, new services, and new risks.”
- Conclusive: identify problems and “follow up too.”

### Building the capacity and will to say “No”
- Two pillars: the ability to act, and the will to act.
- Ability to act requires:
  - proper legal authority
  - adequate resources
  - a clear and well-defined strategy
  - a robust internal organization
  - an effective working relationship with other agencies
- Willingness to act depends on:
  - a clear and unambiguous mandate
  - operational independence free from political or industry interference
  - accountability
  - a skilled staff
  - a healthy arms-length relationship with the industry
  - an effective partnership with boards of directors
- Supervisors must resist “collective euphoria” and be prepared to “say no”; they need political and institutional support.

### Key takeaways and policy implications
- Rules alone are insufficient; implementation quality matters—“rules are only as good as their implementation.”
- Effective supervision requires both technical capacity and institutional incentives to act decisively.
- Support from politicians and clear governance arrangements are essential to empower supervisors to perform intrusive, proactive, comprehensive, adaptive, and conclusive oversight.

*Source: IMFBlog post by José Viñals, May 27, 2010.*

---

## Content in this bundle

- **Staff Paper**
  - [Staff Paper (Markdown version)](/external/pubs/ft/spn/2010/spn1008.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Paper (PDF)](/external/pubs/ft/spn/2010/spn1008.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/blogs/articles/2010/05/27/its-hip-to-be-square-why-good-financial-sector-supervision-is-important_