At the outset of his remarks in “Moving the Dial: Fostering a Culture of Supervisory Effectiveness,” Andrea Enria ( Bank of England) observes a striking paradox: in the aftermath of banking crises, supervisors often bear the brunt of criticism, yet the policy discourse following such episodes typically fixes almost exclusively on regulatory reforms, while paying little attention to the deeper machinery of supervision itself.(systemicrisk.ac.uk) He contends that real progress in resilience depends not only on better laws and capital rules, but on more robust, agile, and culturally attuned supervisory practice.
From that vantage, Enria proposes a set of core “drivers” or building blocks for supervisory effectiveness.
Empower Judgment (within a clear risk appetite framework)
Enria identifies supervisory judgment as foundational: supervision is not simply policing rule breaches, but forward-looking, interpretative, and challenging of culture, strategy, governance, and risk-taking. For supervisors to do this well, they must be empowered to act before rules are breached—or even when buffers are stressed—rather than waiting for clear-cut violations.
However, judgment must not be arbitrariness. Enria argues that judgment should operate within a well-defined institutional risk appetite framework: boundaries, tolerances, and escalation thresholds. This helps constrain discretion and offers guidance to supervisors when they must choose how forcefully to press a firm.
To institutionalize judgment:
• Train supervisors not only in quantitative techniques but in qualitative analysis (culture, governance, incentives).
• Signal from leadership that good-faith judgment calls—even when later judged “wrong” in hindsight—will not unduly penalize staff.
• Encourage a norm of healthy dissent and structured internal debate (so that judgment is not just top-down but subject to internal challenge).
Document and Persuade Supervised Entities(clear findings, credible narrative, board buy-in)
Effective judgment is only meaningful if the firm takes it seriously. That leans heavily on the supervisor’s ability to document problems persuasively, engage senior management and the board, and secure firm ownership of remedial plans.
Enria emphasizes three interlocking ingredients:
• Clear, substantiated findings based on evidence, not insinuation. Supervisors should dig deep, using tools like board effectiveness reviews, interviews, thematic on-site inspections, surveys, and even external consultants.
• Compelling narrative and communication: the issues should be presented in a coherent story that the board can accept as plausible, rather than a set of disconnected technical critiques. Dialogue (not just mandates) helps the bank internalize the concerns.
• Remediation plans with milestones: once the bank agrees, set out a clear timeline, metrics, accountability, and, where necessary, personnel changes.
If the bank treats supervisory findings as mere compliance exercises—“do the minimum to satisfy the regulator”—the underlying problems will persist. Persuasion and ownership matter.
Bias to Action (structured escalation)
Even the best persuasion sometimes fails. Enria warns against a chronic hesitation to act—supervisors may hope that pressure alone will suffice. But deeply rooted governance and cultural failings often require stronger, timely measures.
His prescription is a structured escalation ladder: qualitative or quantitative measures that progressively intensify, up to enforceable actions. These might include:
• Formal recommendations turning into binding requirements
• Capital add-ons (where internal control or risk measurement deficiencies persist)
• Restrictions on business lines, dividends, or expansion
• Fitness and propriety reviews or removal of key function holders
Crucially, escalation must have credible backing from the authority’s leadership. If supervisors believe their decisions will be blocked or that they may be punished for mistakes, they will hesitate.
The triggers for escalation should be clearly specified (as far as possible), to reduce ambiguity and tension. Institutionalizing this ladder biases the system toward forward movement instead of paralysis.
Checks and Balances Within Supervision(internal challenge, transparency, external review)
Powerful supervisory tools and discretion bring risks of arbitrariness or capture. Enria insists that such discretion must be embedded in a system of checks and balances.
Some of his proposals:
• A strong second line of defence within the supervisory authority: internal quality control, peer reviews, horizontal specialists, or “four eyes” oversight to challenge line supervisors.
• Vertical–horizontal interplay: line supervisors know individual firms deeply; horizontal teams bring fresh cross-firm perspectives. Coordinated messaging and consistent priorities are essential.
• Transparency and accountability: supervisors should publish enough on methodology, priorities, indicators of performance, forward guidance, and outcomes to foster legitimacy (while respecting confidentiality).
• External, independent challenge: periodic reviews by outside experts can reveal blind spots or systemic biases and enhance credibility.
When supervisory decisions are subjected to rigorous internal and external scrutiny, the legitimacy of judgment increases, and the discipline on supervisors improves.
Lessons for Other Regulators
While Enria speaks from his experience in European and international forums, his framework offers valuable lessons for regulators in emerging markets:
1. Start with culture and capacity, not just regulation. In many emerging economies, capacity constraints, weak institutions, and informal practices make pure rule-based regimes vulnerable. Prioritizing supervisory judgment, engagement, and enforcement may yield more resilience than piling on rules.
2. Invest in human capital and internal training – knowledge transfer initiatives .
3. Tailor escalation to legal and institutional realities. Many emerging regulators operate in environments with limited legal backing or weak judicial support. The escalation ladder should be adjusted to realistic levers (e.g., licensing conditions, incremental sanctions) and built with due process safeguards to withstand appeals or judicial scrutiny.
4. Build internal challenge and peer review capacity. Frequent peer review (e.g. experienced advisors in Supervision) can help supplement internal capacity.
5. Embrace transparency and legitimacy. In markets where trust in authorities is fragile, publishing supervisory priorities, aggregated performance metrics, and institutional reviews can help reinforce public confidence. Transparency also helps reduce accusations of favoritism or arbitrariness.
6. Phase reforms gradually and pragmatically. Trying to “lift all boats at once” may overwhelm capacity. Begin with pilot exercises in judgment, document & persuade, and limited escalations in systemically important entities, then scale.
7. Learn from cross-jurisdictional peer reviews and external audits. Invite independent assessments of supervisory practice periodically—even preemptively—not just post-crisis. This fosters humility, learning, and credibility.
In sum, “supervisory pragmatism” means recognizing that effective supervision is not just about writing better rules, but about creating a culture, processes, and institutional incentives that allow judgment, persuasion, timely action, and accountability to come together. Regulators in emerging markets may find Enria’s “drivers” a useful blueprint: judgment, documentation & persuasion, escalation, and checks & balances—adapted to local legal, institutional, and resource constraints.
References
Enria, Andrea. “Moving the Dial: Fostering a Culture of Supervisory Effectiveness.” Speech, closed-door meeting on supervisory effectiveness, Basel, September 24, 2025. In Moving the Dial: Fostering a Culture of Supervisory Effectiveness, Systemic Risk Centre, October 9, 2025. (systemicrisk.ac.uk)
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