Abstract

A supervisory authority’s bank supervision department must be proactive in identifying and responding to emerging issues and problems. Off-site analyses of individual bank and banking system data, on-site inspection activity, and frequent open communication with bank administrators are essential to effective supervision. When problems arise, the supervisory authority should tailor its response to the situation and deal with the matter in a timely manner. Strong supervision can be effective in avoiding undesirable consequences that lead to conservatorship and receivership. Box 2.1 details some of the characteristics of problem banks.