We launched our book on the history of bank supervision. In today's post, I engage two key questions about the calling and secrecy associated with this vital system.
Your observation regarding the possible interpretation of the 2023 crisis as a success instead of a failure made me think of the penultimate chapter of Dan Heath's book Upstream (2020) where he makes a compelling case for perceiving the response to and aftermath of Hurricane Katrina as a relative success instead of an abject failure given the Hurricane Pam simulation the previous year that projected over 60,000 deaths given the response by emergency personnel (instead of the fewer than 1,500 which actually occurred with Katrina). If you haven't read the book (yet), I recommend it.
I love this kind of counterfactual reasoning. Any time people make a criticism because of some apparent cost, they are reasoning counterfactually — better to really specify the costs and benefits both.
Simultaneously, I'm admittedly less comfortable and forgiving with this approach when applied to particular sectors (e.g. national security). Ostensibly, both disaster relief and national security involve decisions and concomitant actions that are about "saving lives," but the latter category seems more susceptible to faulty logic and bad faith.
I wonder if a regular policy of releasing confidential supervisory information (meaning, examination reports or memos) at regular intervals wouldn't help improve examination practices.
A (perhaps not exactly common) complaint is that examiners don't understand the business, or are making up requirements, or are focusing on minor risks at the expense of important ones just to get an MRA. Regular exposure of examination work (with names of examiners redacted but the name of the bank not) might help address this complaint.
I think it’s a powerful benefit. I would even accept the release on a long lag — 20 years? 50 years? Right now it is infinite years and no record preservation requirements.
As someone who has examined banks across multiple U.S. agencies, I think this raises important — but often misunderstood — trade-offs.
Exams already undergo extensive internal oversight: legal, managerial, and interagency review. The idea that examiners “make up” requirements often reflects natural tension when supervisors identify emerging risks that may not seem material yet, but signal deeper issues.
Confidential supervision allows candid dialogue before problems escalate. Routine disclosure could discourage that candor, reduce cooperation, and introduce reputational or market risks that undermine safety and soundness. This is why nearly every global jurisdiction protects supervisory confidentiality — to enable early, corrective action before crises emerge.
That said, examiner expertise, business model understanding, and sound risk prioritization remain critical — and are an active focus within the agencies.
Thanks for your thoughtful reply. I've been on multiple sides of this and have seen some poor MRAs. It's the nature of the business that I cannot provide examples without breaking the law.
I know examiners are doing their best and there are multiple rounds of review of proposed findings. I would just say that sometimes, even after all the reviews and checking, some bad ones get through, forcing the financial institution to patch this, that, and the other thing, often in a way that is not focused on real risks.
For the MRAs I'm thinking of, the risk of having to defend them in front of Congress or at a press conference might have made the difference, if only to focus examiners' minds on what the true risks were, their likelihood, and their impact.
Consumers can look up restaurant inspections. We can go to school board meetings. I know banks are special in that runs are a real risk. But with Operation Chokepoint, politicized debanking under the guise of BSA/AML/OFAC compliance, and other highly political actions taken by examiners in recent years, I'm just not convinced that examiners should be allowed to operate in the shadows.
I appreciate your thoughtful response as well, and I care very much about the question of “who watches the watchmen.” I can only speak for myself, but I believe many of the highly trained and experienced “watchmen” truly do hold themselves to the highest standards. That said, I recognize that’s cold comfort to anyone who’s been on the receiving end of an unfair or seemingly unreasonable decision. Bad calls absolutely get made—just like in any profession—but I’d argue that far more good decisions happen behind the scenes that institutions never see, due to the confidential nature of supervision.
I also want to be clear: examiners and supervisors are not supposed to be policymakers. But when agency leadership or Congress fails to act—or drags its feet on providing clear, timely guidance—it creates a policy vacuum. And in that vacuum, supervision ends up being the de facto mechanism for addressing emerging risks. That puts us in a deeply uncomfortable position: trying to protect the system without overstepping our role, and often without the tools, staffing, expertise, or clarity they really need.
That’s why I agree with your point about accountability. There needs to be stronger oversight—not necessarily full transparency, which can trigger unintended consequences like panic or politicization, but meaningful checks by those who understand both the technical and systemic context of supervisory decisions.
And finally, I’d encourage those on the other side of the table to keep doing what you just did here—engage directly and constructively. If there’s a finding that supervisors are getting wrong or are missing the mark - tell them why and explain it. A lot of bad calls I’ve seen have been due to bad communication on BOTH sides. Honest, respectful dialogue goes a long way toward bridging the gap and improving outcomes on both sides.
Your observation regarding the possible interpretation of the 2023 crisis as a success instead of a failure made me think of the penultimate chapter of Dan Heath's book Upstream (2020) where he makes a compelling case for perceiving the response to and aftermath of Hurricane Katrina as a relative success instead of an abject failure given the Hurricane Pam simulation the previous year that projected over 60,000 deaths given the response by emergency personnel (instead of the fewer than 1,500 which actually occurred with Katrina). If you haven't read the book (yet), I recommend it.
I love this kind of counterfactual reasoning. Any time people make a criticism because of some apparent cost, they are reasoning counterfactually — better to really specify the costs and benefits both.
Simultaneously, I'm admittedly less comfortable and forgiving with this approach when applied to particular sectors (e.g. national security). Ostensibly, both disaster relief and national security involve decisions and concomitant actions that are about "saving lives," but the latter category seems more susceptible to faulty logic and bad faith.
I wonder if a regular policy of releasing confidential supervisory information (meaning, examination reports or memos) at regular intervals wouldn't help improve examination practices.
A (perhaps not exactly common) complaint is that examiners don't understand the business, or are making up requirements, or are focusing on minor risks at the expense of important ones just to get an MRA. Regular exposure of examination work (with names of examiners redacted but the name of the bank not) might help address this complaint.
I think it’s a powerful benefit. I would even accept the release on a long lag — 20 years? 50 years? Right now it is infinite years and no record preservation requirements.
As someone who has examined banks across multiple U.S. agencies, I think this raises important — but often misunderstood — trade-offs.
Exams already undergo extensive internal oversight: legal, managerial, and interagency review. The idea that examiners “make up” requirements often reflects natural tension when supervisors identify emerging risks that may not seem material yet, but signal deeper issues.
Confidential supervision allows candid dialogue before problems escalate. Routine disclosure could discourage that candor, reduce cooperation, and introduce reputational or market risks that undermine safety and soundness. This is why nearly every global jurisdiction protects supervisory confidentiality — to enable early, corrective action before crises emerge.
That said, examiner expertise, business model understanding, and sound risk prioritization remain critical — and are an active focus within the agencies.
Really strong points here, thank you.
Thanks for your thoughtful reply. I've been on multiple sides of this and have seen some poor MRAs. It's the nature of the business that I cannot provide examples without breaking the law.
I know examiners are doing their best and there are multiple rounds of review of proposed findings. I would just say that sometimes, even after all the reviews and checking, some bad ones get through, forcing the financial institution to patch this, that, and the other thing, often in a way that is not focused on real risks.
For the MRAs I'm thinking of, the risk of having to defend them in front of Congress or at a press conference might have made the difference, if only to focus examiners' minds on what the true risks were, their likelihood, and their impact.
Consumers can look up restaurant inspections. We can go to school board meetings. I know banks are special in that runs are a real risk. But with Operation Chokepoint, politicized debanking under the guise of BSA/AML/OFAC compliance, and other highly political actions taken by examiners in recent years, I'm just not convinced that examiners should be allowed to operate in the shadows.
Quis custodiet ipsos custodes?
Great thoughts here
I appreciate your thoughtful response as well, and I care very much about the question of “who watches the watchmen.” I can only speak for myself, but I believe many of the highly trained and experienced “watchmen” truly do hold themselves to the highest standards. That said, I recognize that’s cold comfort to anyone who’s been on the receiving end of an unfair or seemingly unreasonable decision. Bad calls absolutely get made—just like in any profession—but I’d argue that far more good decisions happen behind the scenes that institutions never see, due to the confidential nature of supervision.
I also want to be clear: examiners and supervisors are not supposed to be policymakers. But when agency leadership or Congress fails to act—or drags its feet on providing clear, timely guidance—it creates a policy vacuum. And in that vacuum, supervision ends up being the de facto mechanism for addressing emerging risks. That puts us in a deeply uncomfortable position: trying to protect the system without overstepping our role, and often without the tools, staffing, expertise, or clarity they really need.
That’s why I agree with your point about accountability. There needs to be stronger oversight—not necessarily full transparency, which can trigger unintended consequences like panic or politicization, but meaningful checks by those who understand both the technical and systemic context of supervisory decisions.
And finally, I’d encourage those on the other side of the table to keep doing what you just did here—engage directly and constructively. If there’s a finding that supervisors are getting wrong or are missing the mark - tell them why and explain it. A lot of bad calls I’ve seen have been due to bad communication on BOTH sides. Honest, respectful dialogue goes a long way toward bridging the gap and improving outcomes on both sides.