ICYMI: In a speech in June, Andrea Enria, Chair of the Supervisory Board of the European Central Bank, argued that this year's bank failures have made clear that supervisors must increase their efforts to ensure that banks have sound internal governance and risk management, as "well-run banks don't fail."
"Failures in this area are the common theme underpinning recent events in the United States and Switzerland, and they have also been the core theme of many past crises," Enria said. "In my view, this is the one priority area that both banks and supervisors should be focusing on."
Enria argued that these reforms will be much more effective if they focus on supervision, rather than regulation. "We should abandon the ambition of designing ever-more precise regulations that accurately measure all risks under any circumstances, covering even the most extreme business models and risk configurations," he said. "Instead, we should focus our efforts on empowering supervisory teams, within a strong accountability framework."
As a part of this effort, Enria stated that the ECB is looking to improve its own culture to allow supervisors to take swift, strong actions when they identify problems in firms. "Developing a supervisory culture that promotes judgement and challenge is crucial here," Enria said. "We need to be unafraid to escalate where we detect deficiencies."