Supervision of Financial Institutions' Business Models

Financial institutions may fail due to underlying issues in their business models. Flawed business models may lead to inadequate capital, consumer misconduct, money laundering or market harm. The recent bank failures in 2023 highlighted the increasing need for supervisors to assess and intervene when business models pose risks to stability and integrity.

This Toronto Centre Note discusses ways in which supervisors can assess the business models of financial institutions, and can intervene to reduce or mitigate the risks inherent in a flawed business model. This should help supervisory authorities to consider how to incorporate business model analysis within their supervisory frameworks, and how to engage with the boards and senior management of financial institutions on this topic.