Walter's finance blog

Who controls financial institutions?

Here comes a very good question: knowing the very important role played by banks, insurrances, pension funds and other financial insitutions what guaranties that they operate in a sound way, i.e. can cover their current and future obligations ensuring this way stability and trust in the economy to everyone?

There are basically two levels of controle:

• Internal supervision
• Regulatory supervision

Internal supervision is done because the shareholders as represented by the board of the financial institution (a company like any other with owners) has naturally no interest at all in a company going bankrupt. There are for this internal risk and profitability management departments in each financial institution.

Regulatory supervision is done by some official state-driven supervisory institute expecting regular reporting from the financial institutions and doing regular auditing of their activities.

posted by Walter @ 11:15 AM