More Effective Supervision

In the aftermath of the financial crisis, the FSB and G20 Leaders identified as a priority the need for more intense and effective supervision particularly as it relates to systemically important financial institutions (SIFIs).  Increasing the intensity and effectiveness of supervision is a key pillar of the FSB’s SIFI framework, along with requiring higher loss absorbency and facilitating the resolvability of failing financial institutions.

The crisis clearly revealed, albeit under highly stressed and largely unforeseen circumstances, that some supervisors were not successful in achieving an appropriate risk assessment/capital requirement balance. Stronger supervision of SIFIs in good times as well as bad is necessary to support policy changes. Because of the high cost of the past performance failures in supervisory assessments, supervision of SIFIs must clearly be more intense, more effective, and more reliable.

The FSB, in consultation with the IMF, released in November 2010 a report on Intensity and Effectiveness of SIFI Supervision (the SIE report) which set out 32 recommendations primarily aimed at SIFIs, but there were lessons for the supervision of financial institutions more generally. Leaders at the November 2010 G20 summit endorsed the policy recommendations contained in the SIE report and reaffirmed that the new financial regulatory framework must be complemented with more effective oversight and supervision. They agreed that supervisors should have strong and unambiguous mandates, sufficient independence to act, appropriate resources, and a full suite of tools and powers to proactively identify and address risks, including regular stress testing and early intervention.