The accountability regime of banking supervisors: with great power comes great responsibility

Highlights

• Following the Great Financial Crisis, many supervisors have been tasked with a multitude of new objectives layered atop the core safety and soundness (S&S) mandate, which is difficult to define. Some of these new remits are broad and driven by governmental priorities, clouding the demarcation between prudential and political spheres.
• As supervisory remits multiply and converge with political interests, the potential for conflicts between S&S and other mandates grow. Actions taken by supervisors to fulfil their expanded role affect broader segments of society. This calls for a robust accountability regime to assess supervisors' performance. In practice, such mechanisms are difficult to implement due to challenges in prioritising, defining, measuring, and overseeing multiple supervisory mandates.
• Legislative bodies can strengthen the accountability of supervisors by prioritising the S&S mandate and setting clear objectives that supervisors can report on. The establishment of independent oversight bodies to assess supervisors' performance can further enhance accountability.
• Banking authorities can also foster accountability by publishing statements on their interpretation of S&S and other remits and how they plan to fulfil them. Self-assessments – backed by a range of well designed metrics that consider outcomes – can help stakeholders better evaluate how they deliver the S&S and other remits.
• Robust accountability regimes need to be balanced with mechanisms to shield supervisors' from undue political or industry interference and to preserve their operational independence.