Following years of excessive demand growth and serious overheating, Latvia recorded severe losses in output, particularly in 2009 (see Slide 6, GDP levels). This contraction was triggered by a major adverse shock, the global financial crisis, but would have occurred sooner or later anyway, as the macroeconomic imbalances that had been built up were unsustainable.
In this way, the supervisor should be able to identify risks faster and better in future. The Single Supervisory Mechanism also reduces the risk of supervisors developing an all too close relationship with “their” banks. Local knowledge is certainly of great importance in the banking business. But we should also keep an eye on possible misaligned incentives in national supervision.