Is there any bank size that is Too Big to Manage? Our regulators could provide more insight as well. How well do they think Dodd-Frank is playing out? In particular, I'd like to hear whether they are worried that we may be wringing too much discretion out of supervision.
Examiners need some leeway to do their jobs well. They need to have the authority to make the tough calls inside banks without worrying that the CEO can get it overturned with a call to Washington.
I'm not sure where we are on this spectrum right now, but it feels like everyone is too concerned with the proverbial box-ticking. Good banking is an art and so is quality supervision.
Andrew Bailey, executive director of the Bank of England's Financial Policy Committee, tackled this topic in a Nov. 6 speech in London. "The art of supervision is to look at a situation from several angles and seek thereby to identify weaknesses," he said. "Good supervision is about judgment."
Bailey acknowledged "a lot of talk about the need for simplicity," and said he agreed with it.
"The proliferation of rules is unhelpful and particularly when it extends into making rules on how to supervise," he said. "Solid intuition is a part of supervision. But simplicity is not about one-club golf, and it is not about abandoning risk-based regulation. Looking forward, we do need strong judgmental supervision."
Clearly we can't have examiners running our banks. But the supervisor's job has to go beyond cranking out rules, checking compliance, relying on data inputs and models results.
That's where the art enters. The gut feelings, the experience, the intuition. Both science and art are important.