"Who supervises banks, what capital must they hold, and how is failure handled?"
Banks are different. Unlike other firms, a bank failure can cascade — when one bank can't pay its counterparties, those counterparties can't pay theirs, and the resulting freeze in interbank lending can halt the real economy. That contagion risk has driven the most extensive international coordination of any area of finance law: the Basel Accords, developed at the Bank for International Settlements since 1988, set globally-harmonized standards for bank capital, liquidity, and risk management.
But Basel only sets a floor. Each country implements it through national law, and the structure of national supervision varies enormously. Who supervises banks in your country? A central bank? A separate banking regulator? A "twin peaks" pair of prudential and conduct authorities? Multiple overlapping regulators? Each design encodes a different theory of how to prevent failure and contain crises when they happen.
Four basic models exist. Central-bank-led: the same institution that conducts monetary policy also supervises banks (Bank of England's PRA, Banque de France's ACPR). Integrated regulator: a single agency outside the central bank supervises banks and other financial firms (Germany's BaFin, Switzerland's FINMA). Functional regulators: multiple specialized agencies share supervision (the US has the Fed, OCC, FDIC, and state regulators all involved). Twin peaks: prudential supervision (capital, solvency) and conduct supervision (market behavior, consumer protection) are split between two agencies (Australia, Netherlands, UK).
The Basel framework has evolved through four major iterations since 1988. Each tightens capital requirements and refines risk measurement. Basel III, the response to 2008, dramatically raised the minimum capital ratio, added a leverage ratio backstop, and introduced the Liquidity Coverage Ratio and Net Stable Funding Ratio. Basel IV (sometimes called the "Basel III endgame") completes the package, with implementation phased through 2028 in most jurisdictions. The remarkable feature is how closely the major economies have converged on identical capital math — and how much room remains for divergence in how they apply it.
Pre-2008, most countries had no plan for the orderly failure of a large bank — the options were "bailout" or "chaos." Post-crisis reforms created resolution regimes that allow regulators to take over a failing bank, write down its equity and unsecured debt, and either restructure it or transfer its critical functions to a buyer over a weekend. The US Orderly Liquidation Authority (Dodd-Frank Title II), the EU Bank Recovery and Resolution Directive, and the UK special resolution regime all reflect this post-2008 thinking.
A bank operating in 60 countries has a primary supervisor in its home country, but every host country also has supervisory interests. The Basel "Concordat" and subsequent agreements allocate responsibilities; the FSB maintains a list of global systemically important banks (G-SIBs) subject to additional capital requirements. The EU's Single Supervisory Mechanism (since 2014) centralizes supervision of the largest eurozone banks at the ECB — an unusually deep cross-border supervisory arrangement.
The US has the most fragmented banking supervision among major economies. Federal banks are supervised by the OCC (national banks) or the Fed (bank holding companies, state member banks), with the FDIC insuring deposits and supervising state non-member banks. State banks are also supervised by state regulators. The fragmentation reflects American political resistance to centralized banking power going back to Hamilton vs Jefferson. The Dodd-Frank Act (2010) created the Financial Stability Oversight Council to coordinate across these agencies and added the CFPB as a separate consumer-protection regulator.
The UK adopted a twin peaks model after the 2008 crisis. The Prudential Regulation Authority (a subsidiary of the Bank of England) supervises bank solvency, capital, and resolution. The Financial Conduct Authority handles market conduct, consumer protection, and competition. The split addresses a known weakness of integrated regulators: when one agency handles both objectives, prudential concerns tend to dominate during normal times and consumer-protection concerns get attention only after a crisis. The Bank of England's Financial Policy Committee handles macroprudential coordination across the system.
Germany combines an integrated regulator (BaFin, the Federal Financial Supervisory Authority) with significant operational involvement from the central bank (Deutsche Bundesbank). BaFin supervises banks, insurance, securities firms, and asset managers under a single roof. The largest German banks are also directly supervised by the ECB through the Single Supervisory Mechanism since 2014. German banking law reflects a historical structure with three pillars: private commercial banks, public Sparkassen savings banks, and cooperative Volksbanken — a more diverse landscape than the Anglo-American model.
Switzerland has the most consolidated supervisory structure of the four: FINMA (the Swiss Financial Market Supervisory Authority) is responsible for banking, insurance, securities markets, asset managers, and stock exchanges — a unified prudential and conduct regulator with the Swiss National Bank handling monetary policy and systemic stability separately. The 2023 emergency resolution of Credit Suisse (forced merger into UBS) raised significant questions about the Swiss resolution framework, the protection of Additional Tier 1 (AT1) bondholders, and the limits of consolidated supervision when a globally systemic bank faces a confidence run.
Basel convergence + national divergence is the pattern. Every major economy applies essentially the same capital-ratio math derived from Basel III/IV. But the structure of supervision — who has authority, what they can do, how quickly they can act in a crisis — varies enormously, and that variation is often more consequential than the rule text. The same firm with the same balance sheet would face very different supervisory attention depending on whether it operates in the US (multiple competing regulators), the UK (twin peaks), Germany (integrated under ECB oversight), or Switzerland (single agency).
The post-2008 reforms also illustrate an under-appreciated point: regulation is rarely "designed" — it accumulates in response to specific crises. US fragmentation reflects the Civil War and the Great Depression. UK twin peaks reflects 2008. Swiss consolidation reflects historical neutrality and the special position of Swiss banking. Understanding these histories is part of understanding why any given system looks the way it does.
Lessons: Capital Structure Basics covers why bank capital matters; Bankruptcy deals with the firm-failure cousin to bank resolution.
Directory: Federal Reserve, Bank of England, BaFin, and the Bank for International Settlements.
Data: see the cross-country comparison for bank capital ratios and credit-to-GDP across major economies.