Ten steps to banking supervision in a financial crisis

The financial crisis demonstrated that banking supervision practices applied during normal market conditions may not necessarily work during a crisis. Ryozo Himino considers some of the policies that may be required during a systemic event

Writing in The English Constitution in 1867, Walter Bagehot wrote that the imperious will, the rapid energy, the eager nature fit for a great crisis are not required – are impediments even – in common times. The reverse may also be true: blind application of common-time principles may be an impediment in a systemic crisis.

Banking supervision practices applied in regular market conditions cannot remain unchanged during a systemic crisis, as negative feedback loops can increase and exceed the