Uninsured depositors are proving to be uniquely important make-it-or-break-it stakeholders in banks. In his latest The Wide Angle, Sam Theodore says supervisors should focus more attention on making sure that depositors know and are reassured that the job of supervisors is first and foremost to protect them while preserving systemic stability.

Better communication with depositors is necessary, detailing main risks and concerns and the supervisory work being done to address them at an early stage. Making sure depositors don’t lose their funds if a bank fails is important but so is depositors’ confidence that supervisors are capable of remedying problems before they threaten the bank they have their money in.

The spring bank turmoil has demonstrated that the adequacy of prudential metrics is not a guarantee against a bank run. Theodore argues that scenario analysis based on existing and emerging risks can be a useful supervisory tool facilitating dialogue with depositors, improving the supervisory approach and its transparency.

Supervisors do not wish to unduly influence banks’ decision-making when adopting a specific business model but they can provide visibility to their views on business models they consider riskier than others in relation to the profile and culture of the respective bank. This way, depositors can decide if they want to place their money in banks whose profitability is highly dependent on fast growth, risky activities, or narrow niches.

Read the latest The Wide Angle here.