What is bank supervision? Why bank supervision?

WHAT ?

In the bank supervision we often refer to, it is not just the literal meaning of "the bank is controlled." On the one hand, from a smaller perspective, bank supervision means a country’s regulatory agency, which may be the government or other agencies that manage and supervise some business activities of bank financial institutions. On the other hand, from a larger perspective, bank supervision does not only refer to these, but also includes self-management and internal supervision of bank financial institutions.(Min Wu,2004)

Of course, every country in the world has different banking supervision systems. However, in general, it can be divided into two modes of supervision. First, set up an institution to specifically supervise banks. At this time, the central bank does not have the function of supervision. The second is that the central bank and other financial institutions simultaneously exercise the power to supervise banks.(Shenghu Wang,2013)

WHY ?

So why should we supervise banks?
First of all, the main business of banks in any country is currency. The bank is responsible for gathering, flowing, dispersing and gathering funds in society. For enterprises, banks through cash collection and transfer activities. For one thing, to promote the production, supply and marketing within the enterprise into one. For another thing, like a link, the country's name and economic departments are connected, communication production, distribution, exchange, consumption of the four links. Second, for us personally, we are also deeply influenced by banks, and our personal bank deposit business and lending business are closely related to us. In short, banking is a very important role in society and in our life. So, for such an important financial role, we should regulate its development to ensure the smooth operation of our economy and society.

In the 2008 crisis, there are many uncontrollable factors. For example, banks ignore risk standards and extend loans to customers who are unable to repay, and rating agencies fail to rate risks in accordance with strict rating standards. After the 2008 financial crisis, People in the financial industry in any country have reached an important consensus. Have a deep understanding of the financial crisis and explore what will happen. Whether it is a bubble economy or an economic crisis, we have reached a consensus: "The root cause of all economic problems is the lack of supervision of the banking  industry.In fact, measures should not be taken after the financial crisis occurs. (Min Wu,2003) At this time, no matter how timely the measures are, it is too late. A sound and effective banking supervision system should be established at the same time as the development of the financial banking industry.

In summary, bank supervision is essential to the stable operation of any country's financial system and society.

 

References:

Journal of Financial Intermediation

Volume 13, Issue 2, April 2004, Pages 205-248

Journal of Money, Credit and Banking

Vol. 30, No. 4 (Nov., 1998), pp. 745-770 (26 pages)