The paper presents an analysis of the mutual relations between banking supervision and corporate governance with regard to the competitiveness of the banking sector. The author advances an apparently controversial thesis that, despite numerous substantial differences between these two supervisory systems - particularly in terms of regulation (provisions, norms, standards), persons involved and supervisory measures - as far as the level of development and stability of the banking sector are concerned, they can be considered equal.

The author proves that the common ground between both systems is their effectiveness, which is assessed on the basis of competitiveness among the entities supervised. To be considered effective, to safeguard the deposits placed in the banks and to ensure the stability of the banking system, the banking supervision system should foster competitiveness in the banking sector. The best evidence for the effectiveness of banking supervision is a strong capital base and modern management system which are the key features characterising a stable and competitive banking sector. Mitigation of the risks connected with routine bank activities is not the only reason for applying the prudential standards. By imposing various restrictions on banks based on market mechanisms, the banking supervision system should promote market discipline in the banking sector. Competent managing staff, high quality risk management, transparency and responsibility: these requirements as laid down by the banking supervision system, foster the effectiveness and stability of banks. Hence, the supervision enhances the competitiveness of the banking sector, thus improving the stability and safety of the whole finance system.

Effective corporate governance is transparent, it mitigates the risks and fosters effective management. It makes companies more attractive for potential investors and more competitive and thus ensures their development and stability. As for the banking sector, effective corporate governance aims at placing the position of all the banks' stakeholders on an equal footing, which reduces the threat of inner conflicts. Thus, it ensures the safety of the money located in banks and guarantees the stakeholders profits from the invested capital. Effective corporate governance ascertains the cautious and competent management of banks and high professional and ethical standards on the part of the managing staff. This reduces the threat of financial instability to banks and other related entities and to the finance system as a whole. Therefore, effective corporate governance in banks enhances banking supervision and ensures the stability of the banking system. Banking supervision authorities need to realise the need for effective corporate governance. Promoting effective corporate governance can be beneficial not only to the banks' stakeholders and management, but also to the state, because it regulates the finance markets.