External and internal supervision: How to make it work?

Abstract

Authorities responsible for prudential supervision and Supervisory Boards as internal supervisor are both in the business of supervising financial institutions. But the roles, objectives, methods and positions are different. This chapter discusses why and how they are different and how each supervisor can best fulfil its role, using DNB as an example. The argument is made that prudential supervisors may take on too big a role, as they are essentially disadvantaged relative to internal supervisors in terms of information and expertise. In order to ensure proper reviews of the functioning of Supervisory Boards, an external, experienced and independent party should be involved in such performance reviews regularly.