When the Lehman Brothers bank collapsed in September 2008, the world’s financial system almost crashed with it. Eight years on, the effects of the financial crisis are still being felt. Lessons learned from the economic downturn include the importance of effective banking supervision and ensuring that banking supervisors and external auditors collaborate more closely in order to improve the oversight of banks’ activities.
Banking supervisors and external auditors make a significant contribution to market discipline. Auditors ensure that financial information is transparent and reliable while supervisors provide confidence in financial systems. Supervisors and auditors allow market players to make informed decisions and contribute to financial stability.
According to Michael Hysek, Head of Department, Banking Supervision, Austrian Financial Market Authority: “Bank auditors provide considerable additional value for banking supervision. Auditors are an important source of supervisory information: they ensure ongoing information exchange with the competent authorities, provide an opportunity to gain detailed insights into credit institutions and allow ongoing assessments of the Internal Control Mechanism.”
Encouraging dialogue between supervisors and auditors
Financial experts at the World Bank’s Centre for Financial Reporting Reform (CFRR) engage in regular policy discussions with banking supervisors, including senior staff at the European Central Bank, the European Banking Authority, the Financial Stability Board, the sub-committee of the Basel Committee on Banking Supervision, as well as national banking and insurance supervisors across Europe.
Over the last two years, the CFRR has also organized a number of capacity building activities with senior staff from regulatory agencies responsible for supervising banks and insurance undertakings. These activities are designed to enhance collaboration between key players in the banking sector from countries across Europe. In addition, participants are being equipped with the accounting knowledge — a better understanding of International Financial Reporting Standards — and the skills necessary to review financial statements and improve supervision. This is essential since supervisors are expected to assess and challenge the figures reported in financial institutions’ statements.
This year, supervisors and regulators responsible for supervising banks and insurance undertakings from 13 countries across Europe attended the 2016 Supervisors’ Exchange Forum in Vienna, Austria. The forum was hosted by the CFRR and the Austrian Ministry of Finance from September 7 to 9.
Welcoming participants, Ellen Goldstein, the World Bank’s Regional Director for the Western Balkans, highlighted some of the specific issues facing the financial sector in the Europe and Central Asia (ECA) region. These include non-performing loans and underdeveloped capital markets, resulting in limited access to finance for many small and medium-size enterprises in the region.