Financieele Dagblad: Central bank restructure lesser of two evils

Finance minister De Jager’s leaked plans concerning the restructuring of the top of the central bank include an Internal Supervisory Board. The role of the financial supervisor is to become more prominent.. Cosmetic or real reform, ask Pieter Lalkens and Leon Willems in the Financieele Dagblad.

The chairman of the new board will be an executive director whose authority will equal that of the president of the bank who is responsible for the bank’s monetary policy and who is chairman of the governing board.
Clever move
De Jager’s intentions show that the ministry and the central bank have heeded public criticism on the supervision of financial institutions. With president Nout Wellink and supervisory board director Henk Brouwer about to step down, De Jager is putting in place a structure that will make the position of Henk Brouwer’s successor at least much more solid.
Professors Arnoud Boot and Harald Benink have welcomed the change. Both have argued for a stricter regulator, who, they feel should also have a public role.
‘It’s a clever move’, says Benink. According to Boot the supervisor’s teeth have been sharpened. ‘He can be as confrontational as he likes without damaging the president of the bank’s independent monetary function.’

But does this reform really make a material difference? The bank will still operate under a collegiate board. The chairman of the Internal Supervisory Board may be in charge of supervision but the final responsibility still lies with the president of the bank.
The structure is similar to that of the council of ministers. The minister is responsible but when things go wrong the prime minister must take his share of the blame. Similarly, should another bank fail, Wellink’s successor won’t be able to hide behind his number one supervisor.
Lesser of two evils
And that is exactly what many feel should happen. Wellink, who is praised for his knowledge of monetary policy and bank solvency, did not emerge from the public debate on the Ice Save and DSB Bank debacles unharmed. In order to avoid this, the bank should be divided into a monetary authority and a supervisory body. ‘Not a good idea’, according to professor Harald Benink. ‘Bank supervision and monetary policy influence each other. Decisions have to be weighed carefully and to do that you need a good exchange of information’.
This means De Jager’s plans are generally regarded as the lesser of two evils.
According to professor Arnoud Boot it doesn’t really matter whether the change is cosmetic or not. ‘What matters is that there is a buffer between the president of the bank and the outside world. The new supervisor will act as a lightning rod.’
Jeroen Kremers, former senior civil servant at the ministry of finance and executive at the Royal bank of Scotland, agrees. In an interview with the Financieele Dagblad last September, Kremers said a more prominent position of the financial supervisor would ‘deflect the blows away from the president.’
Kremers maintains that there is a hesitancy when it comes to knocking on the president’s door about supervisory matters because they are separate from his monetary responsibilities. But Kremers thinks this is turning things on their head. A minister has a right and a duty to intervene when necessary’, he says. But if the two roles collide, there is an ‘issue’ to be solved.
Boot admits that the new structure may cause friction between the roles of the new supervisor and the president of the bank. ‘Both functions come together in the bank’s executive board. There will always be an element of collegiate government.’ In Boot’s view the president of the bank will remain the figure head in times of trouble. ‘Friction between the two functions is definitely a possibility and as far as I know this problem has not been addressed yet.’
Others point out that much will depend on the personalities of the people in the job. In this respect it is a good thing Wellink and Brouwer are stepping down. The search for suitable successors will now also have to focus on compatibility.

Added advantage

According to Harald Benink, a new supervisory structure has the added advantage of making the search for suitable top job material easier. ‘The role of president and that of supervisor demand different sets of skills. A president is often analytical and contemplative whereas a supervisor needs to be much tougher and sharper. It is difficult to find someone who combines these skills.’
The route chosen by De Jager seems to have been inspired by recent British reform which also favours a bigger supervisory role. The supervisory body will even become a subsidiary of the country’s central bank, something that will not happen here.
It is likely that De Jager’s plans will be backed by a parliamentary majority. To sum up: Wellink is leaving on the 1st of July, financial supervision is getting a make over, cosmetic or not, and Wellink’s successor will be mainly responsible for monetary policy.
This is an unofficial translation

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