Speech Klaas Knot - Speech Klaas Knot - ‘The ability and the will to act’

I am grateful for the invitation to speak here at this important event 

In the aftermath of the great financial crisis, almost 14 years ago, we at the Dutch central bank did quite some soul searching on how to make our supervision of the financial sector more effective.

We were much inspired by an IMF paper ‘Learning to say no’, that was published around that time. Although the title sounded a bit like a guide for young parents, the paper basically defined the key elements of  good supervision and what is needed to achieve it. It’s perhaps the best paper on supervisory practice ever written.

According to the authors, two things are needed for good supervision. First, the “ability” to supervise. This requires appropriate resources, good laws and regulations, expert knowledge, authority, and constructive working relationships with other agencies. Second, next to the ability, supervisors need to have the “will” to act. Supervisors must be willing and empowered to take timely and effective action, to intervene in decision-making, to question common wisdom, and to take unpopular decisions. When you come to think of it, a lot of this also applies to other typical central bank mandates, such as monetary policy, payments oversight, and, more generally, preserving financial stability.

Today, we mark the start of the EU Twinning project aimed at strengthening supervision, corporate governance, and risk management in the financial sector of the Republic of Moldova. As a long-standing partner of the National Bank of Moldova, also in the IMF and World Bank constituency, we at the Dutch central bank are more than happy to contribute, together with our Romanian and Lithuanian partners.

The intermediate aim of the project is to strengthen the capacity of the National Bank of Moldova and the National Commission for Financial Markets. And to align their functions and operations with EU regulations and international standards. But of course, the ultimate objective goes beyond this. That is to improve stability, functioning, and trust in the financial system. So that the people of Moldova can build their future, knowing that their money is safe, that they can pay without trouble, and that they can get credit to buy a house or to start up a business.

Such a financial system cannot exist without a strong central bank and a strong supervisor. A central bank and a supervisor that have the ability and the will to act.

I trust the EU Twinning project will greatly improve the supervisory abilities of the Moldovan authorities, through developing effective tools, methodologies and procedures, and through training. Here it can build on the success of the previous Twinning project, also thanks to the efforts of our colleagues from the National Bank of Romania.

But as the IMF indicated, and as we learnt the hard way during the great financial crisis, this is not enough. Developing the “will to act” is a more difficult task and requires supervisors to have a clear and unambiguous mandate, operational independence coupled with accountability, and a relationship with industry and government that avoids regulatory capture.

This is not always something that technical cooperation can deliver. For this to happen, society must stand with its supervisors as they play their role as guardians of financial stability. This is not only important but it is also the rational thing to do, because in the end, financial stability is in the interest of everybody.

On that note I end my remarks, and I wish the Moldovan partners and the project team yet another success in building a strong financial system in Moldova.