What is bank supervision? Is NDB Bank fraud a supervisory lapse? Is the supervision prepared to deal with future banking crises?
Article's background and purpose During last few months, an extensive debate has taken place whether the central bank's bank supervision function has failed in early detection of the NDB bank fraud and resolution of the same. In contrast, the central bank management has been firmly responding that bank supervision is a prudential supervisory model and, therefore, not responsible for bank fraud risks for which bank management is responsible under Corporate Governance Directions. By listening to this never resolvable debate, given my long standing involvement in the bank supervision function of the previous central bank under the Monetary Law Act (MLA), I feel that the present central bank talks about a revised or lightly touched bank supervision model operating under the Central Bank of Sri Lanka Act of 2023 certified on 14 September 2023. The reason for my impression is that the previous bank supervision officers definitely would have early detected a bank fraud of such a m...