In our small Dutch Caribbean region, we have no less than four supervisors for our financial institutions. These are the Central Bank of Curaçao and St. Maarten, the Central Bank of Aruba, the “Nederlandsche Bank”, and the Netherlands Authority for the Financial Markets. The latter two are the supervisors in the Dutch Caribbean. Four supervisors is quite a lot.
Let me say first that supervising our financial institutions is necessary. This applies to every financial institution in every country. We cannot do without it. Our banks, our insurance companies, and our pension funds manage the capital of almost everyone in the community. The interest in proper management far exceeds the interest of the individual entrepreneur or shareholder who undertakes this management. So independent supervision over it is a good thing.
Moreover, the banking crisis of 2008 has shown that the bankruptcy of a bank in a completely different country can have a border-crossing domino effect. Literally the entire financial world was shocked by the bankruptcy of Lehman Brothers in 2008. Major economies ran a real risk of collapsing. It is clear that the policy of private, profit-oriented institutions cannot have such a substantial impact on the economic and social wellbeing of all of us. In that case, tightened supervision is appropriate.
Ad hoc intervention
But that is exactly the core of the problem. History shows that tightened rules for supervision and rules for corporate governance are always introduced if there has been an incident of wrongdoing, a scandal, or a crisis. In other words: we always respond after the fact. We often react ad hoc and without a vision. As a result, we always think insufficiently about the essence, the necessary scope, and the necessary restrictions of the supervision to be conducted. We thus also create our own illusions. We believe we have defused the risk. We collectively think that a new crisis can be avoided if we keep the financial world adequately under control. But that is not how it works. More supervision, less risk? More rules, less danger? Forget it.
The OECD has calculated that the costs of financial supervision have sky-rocketed in recent years. The management attention for compliance and governance has risen disproportionately. In the higher echelons of the financial business community, one sometimes is busier with formulating and checking rules on the instructions of the central banks than with actual business. Running a business without taking some, albeit well-considered, risks is impossible. Some degree of intuition, trust, and room for management is necessary for healthy growth. I am convinced that too close-knit regulations and supervision ultimately result in a weak financial sector.
How about our own supervisors? Remarkably, the countries in the Dutch Caribbean have suffered relatively little from the banking crisis in 2008. This has several reasons. One hereof is absolutely that the (then) Central Bank of the Netherlands Antilles already introduced “Guidelines for Corporate Governance” for financial institutions in a relatively early stage (in 1996). Some regulation is consequently not a bad thing. But in moderation!