Lessons on supervisory effectiveness - a literature review

This literature review aims to support the work of the Basel Committee on Banking Supervision by providing insights from academic and policy work (including policy notes and speeches). It also draws on lessons from observed bank failures and supervisory practices. It provides key messages on supervisory effectiveness, which is defined – drawing from Principles 1 and 8 of the Core Principles for effective banking supervision (BCPs) – as promoting the safety and soundness of banks and the banking system by promptly assessing prudential risks, identifying material shortcomings within banks, and using the supervisory toolkit and powers appropriately to ensure that banks remediate shortcomings in a timely manner.

This literature review starts at the bottom of the "house of effectiveness" with the enablers of and impediments to effective supervision and then discusses the three interdependent pillars of (i) risk identification and assessment, (ii) remediation and enforcement, and (iii) collaboration and transparency. Supervisory culture and risk management conclude, spanning the roof over the three pillars and completing the "house".