This would certainly lead to distortions. Nor would I condone the practice of  BIS Review 104/2006  1  requiring licenses for opening a branch in another area of the country. The banks must decide this for themselves. The content of the license application procedure is very important. Here the authorities have an opportunity to prevent bad apples from entering the barrel. The authorities must check that both owners and managers are “fit and proper”, which means competent and not criminal. The requirement regarding skills is of course higher if they want to run complex banking activities. It is not necessary that each Board member knows every bank activity himself but between them the Board should be competent on all issues. Remember that Nick Leeson at Barings Bank easily convinced his Board that he could run a highly profitable derivatives trading operation without any risk to the bank! The license application also includes the organisation and structure of the bank group. You should demand that this does not hinder the effective supervision of the group. Do you remember the BCCI bank which collapsed in the early 1990s? The bank’s owners had created a structure for their group with the clear intention of making full insight by the supervisors more difficult. For instance, the main activities and risk-taking did not take place where the main office and thus the main supervisor was located.
However, this should not stop an action started by the supervisor to deal with a presumed problem in the bank. The supervisory management and staff must also have reasonable protection should they be sued for their bona fide decisions taken as supervisors. In some countries the supervisors are harassed by frivolous lawsuits by bank owners, managers or other parties. Even if the supervisor is in the end acquitted from any guilt, the process may take years. During this time the supervisor will be severely hampered in performing her job having to concentrate on her defence. Such lawsuits will also reduce the willingness of other supervisors to take necessary supervisory decisions, since they are themselves afraid of being sued. A first line of defence is to take all major supervisory decisions in a collegiate fashion at the top level. Thus only the agency such can be sued as an institution. Nevertheless, should individual supervisors be sued, they must be provided assistance in the court proceedings, such as legal counsel and protection against any costs. Of course, if the supervisor is finally found guilty and have not acted in good faith, the supervisory agency could reclaim any outlays. The second issue is that the supervisors must have a sufficiently large and skilled staff with satisfactory resources. With too few, or not adequately skilled supervisors, bank problems may not be detected early enough which may lead to major crises. With too many supervisors interventions in the banks might become excessive, thus interfering in banks’ daily business.