Restoy: Supervision crucial for strong bank governance
Fernando Restoy, Chair of the Financial Stability Institute, argued that robust supervision is more effective than rigid regulation in fostering strong bank governance. Speaking at the 2026 Corporate Governance Summit in Manila, he highlighted lessons from past financial crises.
Culture failures, not capital, behind bank crises
Financial crises, including the Great Financial Crisis and the 2023 banking turmoil, consistently reveal that bank failures stem from deficient culture and poor governance, not merely insufficient capital.
Fernando Restoy, Chair of the Financial Stability Institute, echoed Andrew Bailey's earlier statement that major prudential failings invariably have roots in culture.
Restoy emphasized that no amount of capital can fully compensate for risks arising from inadequate risk management or weak governance.
He cited that even a 5% decline in asset values could deplete minimum Common Equity Tier 1 capital under Basel III, underscoring the disproportionate impact of qualitative shortcomings on financial stability.
Beyond rules: Accountability and board challenges
Post-GFC, governance was strengthened through updated Basel Principles, FSB remuneration guidelines, and Individual Accountability Regimes (IARs) that formalize senior executive responsibilities.
Supervisors, including the Dutch central bank and the ECB, intensified their governance assessments.
While authorities emphasize board oversight and independence, Restoy cautioned that rigid constraints on independent directors can hinder effective monitoring for complex institutions.
He noted empirical evidence does not consistently link board size, independence, or diversity to better bank performance, but rather supports the value of directors' banking and finance expertise.
Supervision: The true governance lever
Rules alone cannot guarantee good corporate governance, risking a tick-the-box exercise.
Supervision is the most effective tool for identifying and addressing governance weaknesses early and proportionately.
Supervisory Risk Appetite Frameworks (RAFs) offer a promising method to structure supervisory judgment, ensuring consistent and timely interventions.