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We Need to Fix Supervision

We Need to Fix Supervision

by Starling Insights

Starling Insights Editorial Board

Sep 18, 2023


In a recent column, Gillian Tett of the Financial Times laments that, fifteen years after the failure of Lehman Brothers, there are still significant deficiencies in banking supervision. She cites a recent IMF report, Good Supervision: Lessons From The Field. With many others, the IMF argues that the collapse of Silicon Valley Bank and forced sale of Credit Suisse earlier this year resulted from failures in risk management at firms. But it goes on to observe that this was compounded by flaccid supervisory oversight. 

“While there has been endless noise about capital and liquidity standards, there has been a woeful lack of attention paid to other realms of finance,” Tett’s column continues. Here, she quotes Agustín Carstens, General Manager of the Bank for International Settlements. “Banking supervision needs to up its game,” he recently argued. The question many are wrestling with now is precisely how this is to be achieved.

“Many of the tools we have been using to navigate the world are simply not working well,” Tett wrote in her 2021 book, Anthro-vision. “The problem is such tools are incomplete,” she argues, “used without an awareness of culture and context.” If they are to achieve greater efficacy and operate with the necessary speed and scope that fast moving global markets require, supervisors will require new tools.

In this direction, some are looking to technology. Far outpacing many of its peers, for instance, the European Central Bank has developed a "Digitisation Blueprint” which lays out plans for the adoption of supervisory technologies (‘SupTech') that may enable supervisors to identify and act upon problems before they cascade into crises. Others, like the Fed’s Vice Chair for Supervision, Michael Barr, have taken note of the promise that behavioral science holds in helping supervisors to investigate whether their organizational cultures support effective industry oversight. 

Tett would likely applaud moves in both directions. “Blending computing and social science should be a particular priority today,” she writes in Anthro-vision. "There is a burning need to combine hard and soft sciences — mixing Big Data and artificial intelligence with some cultural analysis capability,” she argued further in the Preamble to Starling’s 2021 Compendium. ▸ Read More

At the IMF Spring meetings in April this year, Tett made the case for bringing an anthropological lens to policy and management questions. Next month, as the world’s leading financial figures gather in Marrakech for the IMF/World Bank meetings, she will have opportunity to expand on her earlier arguments. Her audience would do well to pay heed.

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