Supervision on Supervision

On February 1 2013, the Dutch Minister of Finance, in close consultation with the Dutch Supervisor 'De Nederlandsche Bank' (DNB), announced he nationalized the Dutch Bank-Insurer SNS Reaal.

Intervention was necessary to prevent grave threats to the Dutch financial stability and economy.

This intervention shows again that the European stress tests fail, as was already predicted in a Quartz article called "Forget the stress tests: Europe’s banks are a worrisome mystery" on October 2, 2012. Risk managers have to to a better job. Work to be done!

Role of the Supervisor
The intervention also raised the question about the role of the Dutch supervisor DNB in this debacle. Officially the (Dutch) Minister of Finance is responsible for the supervision on the national supervisor. In practice this role is delegated to the national 'Supreme Audit Institutions' (SAIs).

A special  European Committee Working  Group assessed the scope of the mandate of Supreme Audit Institutions (SAIs) and its proper functioning with respect to the main financial supervisor  (FSA)  for
prudential oversight on banks.

Thirteen (of the twenty seven) European countries participated in the SAIs research.

Three aspects were analyzed:

1. Mandate: Has the local SAI a mandate to audit the supervisory role?
2. Access:  Has the local SAI actually access to audit bank files of the supervisor\supervisor
3. Test: Did SAI successfully test the completeness of the bank files

Here are  that are disappointing results of the work group for the main 11 countries:

Yes* = Yes , with condition of confidentiality

Conclusion

Although a general approach of (SAI) supervision on (Supervisor) seems useless and even silly, it's clear that the current supervisory grip and transparency is undeniably inadequate.

In this case, we certainly need a strong supervision on national supervisors in Europe to prevent accidents like SNS. In other words: Back to the old 'Four Eyes Principle'...


Finally
In a letter to the Dutch  House of Representatives the Dutch SAI states:
"The Council of Ministers agreed to the introduction of a European supervisory mechanism for banks, with a central role for the ECB, on 13 December 2012. 

To safeguard the information position of the European parliament and the member states, the European Court of Auditors should be able to audit the supervision exercised by the ECB.

The European Court of Auditors' current mandate does not allow it to do so. This creates an audit gap at European level: arrangements are not in place for the independent audit of the ECB's organisation and exercise of its supervisory tasks and authority. "

Links
- State of the Netherlands nationalises SNS REAAL
- Forget the stress tests: Europe’s banks are a worrisome mystery
- Points for consideration in the Dutch House of Representatives
- Points for consideration in the Dutch House of Representatives (Dutch)
- 4 Eyes Principle Cartoon