## Financial Stability Needs Supervisors With the Ability and Will to Act

_IMF Blog, September 18, 2023_

## Source details

**Canonical URL:** [Financial Stability Needs Supervisors With the Ability and Will to Act](https://www.imf.org/en/blogs/articles/2023/09/18/financial-stability-needs-supervisors-with-the-ability-and-will-to-act)

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## Bibliographic details
- Authors: Tobias Adrian, Fabiana Melo, Marina Moretti, Jay Surti
- Published: September 18, 2023

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### Overview
- Title: Financial Stability Needs Supervisors With the Ability and Will to Act
- Authors: Tobias Adrian, Fabiana Melo, Marina Moretti, Jay Surti
- Date: September 18, 2023
- Central message: Keeping banks safe and sound, and anchoring financial stability, hinges as much on good supervision as on effective risk management and governance in banks, robust regulation, and vigilant markets.

### The making of good supervision
- Good supervision requires:
  - operational independence to carry out tasks free of outside pressures, along with accountability;
  - a clear mandate focused on safety and soundness;
  - adequate legal powers to back actions;
  - sufficient resources and appropriate skillsets;
  - sound judgment and deep analysis based on accurate situational awareness of the outlook, risks, and vulnerabilities.
- Historical context:
  - The 2012 update of the global standards for banking supervision—the Basel Core Principles—raised expectations for supervisors to take account of economic and business trends and the build-up and concentration of risks.
  - “Light touch” supervision proved unsuccessful, leading to institutional and systemic distress when intrusive and timely supervisory effort was absent.
- Recent reflections:
  - The IMF paper Good Supervision: Lessons from the Field draws on recent bank turmoil in the United States and Switzerland and on the IMF’s surveillance and capacity building work of the past 10 years.

### Progress and remaining gaps
- Progress noted:
  - Much progress in risk monitoring and analysis across advanced, emerging, and developing countries.
  - Wider adoption of forward-looking supervisory approaches, including data-intensive and technology-driven tools.
  - Wider adoption of stress tests to broaden supervisors’ views beyond historical data and past experiences.
  - Business model analysis has become integral to supervisory frameworks in many countries.
- Key shortcomings:
  - More than half of the jurisdictions do not have independent bank supervisors with a clear safety and soundness mandate, with sound internal governance, or with resources appropriate to their assigned responsibilities.
  - Deficiencies remain in supervisory approaches, techniques, tools, and in the use of corrective and sanctioning powers.
  - Timely action based on supervisory findings continues to be a challenge.
  - Structural evolution of the financial sector—growth of nonbank financial intermediation, digitalization of finance, and climate change—adds to supervisory challenges and makes weaknesses more relevant.

### Higher bar for good supervision — Priority actions
- Take a more systematic approach to requiring banks to go beyond quantitative regulatory thresholds and prudential rules when business and macro-financial risks are high.
- Overcome the tendency to under-allocate resources and attention to all but the largest of banks, as vulnerabilities at smaller banks can also trigger or amplify adverse systemic impact.
- Ensure that trained and experienced supervisors are available and can focus attention on governance, business models, and risk management at banks.
- Develop internal processes for decision making and escalation of actions that are clear and effective.

### Policy implications
- Supervisors’ efforts alone are insufficient; other policymakers, including parliaments, must:
  - ensure a vigilant, independent, well resourced, and accountable supervisory structure;
  - strengthen institutional foundations to enhance supervisors’ will and ability to act;
  - purge perceived or actual vulnerability to government or industry influence to yield substantial benefits.

*Source: Financial Stability Needs Supervisors With the Ability and Will to Act (IMF blog, September 18, 2023).*

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## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2023/english/wpiea2023181-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2023/english/wpiea2023181-print-pdf.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/blogs/articles/2023/09/18/financial-stability-needs-supervisors-with-the-ability-and-will-to-act_