The Making of Good Supervision: Learning to Say "No"

IMF Staff Position Notes, May 18, 2010

Source details

Authors: Jennifer A. Elliott, Aditya Narain, Ian Tower, José Vinãls, Pierluigi Bologna, Michael Hsu, Jonathan Fiechter
Published: May 18, 2010
Series: IMF Staff Position Notes
DOI: https://doi.org/10.5089/9781462310180.004

The quality of financial sector supervision emerged as a key issue from the financial crisis.
Most countries operated broadly under the same regulatory standards, but differences emerged in supervisory approaches.
International response emphasized more and better regulations (for example, in areas such as bank capital, liquidity and provisioning) and a framework to address systemic risks, with less discussion of how supervision itself could be strengthened.
IMF assessments over the past decade indicate progress in putting regulation in place, but significant work remains to strengthen supervision in many countries.

Good supervision is:
- intrusive
- skeptical
- proactive
- comprehensive
- adaptive
- conclusive
Achieving these elements requires both:
- the “ability” to supervise (appropriate resources, authority, organization, constructive working relationships with other agencies)
- the “will” to act (willingness and empowerment to take timely and effective action, to intrude on decision-making, to question common wisdom, and to take unpopular decisions)

Developing the “will to act” is particularly difficult and requires:
- a clear and unambiguous mandate for supervisors
- operational independence coupled with accountability
- skilled staff
- a relationship with industry that avoids “regulatory capture”
Supervisory capacity is not only technical: it depends on legal and institutional arrangements that give supervisors authority and protect them from undue industry influence.

Give essential elements of good supervision as much attention as regulatory reforms being contemplated at national and international levels.
Strengthen both the ability and the will to supervise to deliver on the regulatory reform agenda effectively.
Society must support supervisors as they act as naysayers in times of exuberance, enabling them to take necessary but potentially unpopular actions.

Source: The Making of Good Supervision: Learning to Say "No", IMF Staff Position Note (May 18, 2010).