Final answer:
In bank supervision, a supervisor reviews balance sheets and verifies the positive net worth and risk management of banks. This review is conducted by bank examiners and is crucial for preventing financial crises. Bank supervision includes transparency laws and may result in banks being corrected or closed if needed.
Step-by-step explanation:
A supervisor's role in bank supervision is critical to ensuring the accuracy and current standing of accounts. The process includes reviewing and monitoring the balance sheets of banks to verify they maintain a positive net worth and are managing risks appropriately.
Supervisors, like bank examiners from the Office of the Comptroller of the Currency and the National Credit Union Administration (NCUA), conduct on-site reviews and oversee various financial institutions, including large national banks, foreign banks with U.S. branches, and credit unions, respectively.
The effectiveness of bank supervision can be pivotal in preventing financial crises, as inefficient oversight can lead to significant losses and banking instability, as seen during the recession of 2008-2009. In the United States, legislation requiring open and public disclosure of bank findings and immediate action upon problem identification has been established to promote transparency and accountability.
Ultimately, bank examiners play an essential role in maintaining the health of the financial system by mandating corrective measures or, in severe cases, facilitating institutional closures or sales.