Supervisory oversight then concentrates on the performance of each institution’s risk management process rather than devising a regulatory capital scheme that may not fit every institution, and inevitably have loopholes or inconsistencies that can be exploited. • Second, greater reliance will be placed -- particularly for nonbank business lines -- on the discipline the market can exert on individual participants.
The latter element to our supervisory approach depends on market participants acting in their own self interest when dealing with counterparties. That involves understanding the risks of engaging in business and properly pricing transactions. Reliable financial information is an essential ingredient to efficient market discipline. Such information would clearly convey the risk profile of the institution it represents.