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Changes to Supervision, Not Capital, Are Needed

Changes to Supervision, Not Capital, Are Needed

by Starling Insights

Starling Insights Editorial Board

Aug 15, 2023


In an interview from late last month, Andrea Enria, Chair of the Supervisory Board of the European Central Bank, argues that the emphasis on capital and liquidity requirements in the wake of this year's bank failures is misguided. Instead, he encourages a greater focus on the efficacy of supervision and banks' risk management.

"When there are banking crises, the usual reaction is to start thinking about regulatory reforms," he says. "I think that in this case the main lesson is about the effectiveness of supervision and banks' internal controls, rather than regulations."

While Credit Suisse was in compliance with capital and liquidity requirements before its collapse, this does not mean these requirements were insufficient, Enria argues.

"Credit Suisse had a serious problem with its business model and governance," he says. "This led to the crisis. So, the lessons are about how to make supervision more effective in order to intervene early and effectively, and how to strengthen banks’ internal controls."

In a recent op-ed in The Banker, Stephen Scott, Starling's Founder & CEO, argued that, in order to change banking for good, we must also change banking supervision for good.

“The question supervisors are wrestling with today is this: before crisis reveals failure, how are firms to demonstrate effective risk governance – particularly of non-financial risks that flow from organisational culture and the conduct it promotes – and how are supervisors to test for this proactively?" he writes. [Read More]

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