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Principles of Good Financial Supervision

In: Improving Banking Supervision

Author

Listed:
  • David G. Mayes
  • Liisa Halme
  • Aarno Liuksila

Abstract

The fundamental premise of this chapter is that the legal and supervisory framework of the financial industry matters as a precondition for stability. An effective and workable regulatory and supervisory regime is forward-looking and anticipatory, so that those responsible for financial system stability ensure that the regime is adapted to forthcoming, or at least current, changes in the surrounding economy and can react flexibly. These aspects have often been given too little weight — if not forgotten entirely — during the regime shifts that preceded banking crises in many countries. As Llewellyn (1999) points out, when planning regime shifts, the authorities need to ensure that they have a supervisory system in place that can cope with the inevitable mistakes that financial institutions will make as they learn how to operate in the new regime.1 The framework required for the transition is likely to be different both from that required for the old regime and from that for the new.

Suggested Citation

  • David G. Mayes & Liisa Halme & Aarno Liuksila, 2001. "Principles of Good Financial Supervision," Palgrave Macmillan Books, in: Improving Banking Supervision, chapter 4, pages 65-90, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28819-5_4
    DOI: 10.1057/9780230288195_4
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