A properly functioning system requires a full flow of information: from the supervisory authority to the central bank, with a view to providing all the relevant information to monitor and analyse risk and, vice versa, from the central bank to the micro-prudential supervisor in order to provide the result of the risk analysis and ensure that appropriate measures are implemented.
Also important are a clear allocation of responsibilities and proper accountability to ensure that the right incentives are in place for the achievement of results in a cooperative manner rather than inter-institutional fighting, which is a recipe for disaster. To consider the options available let me refer for simplicity the Turner Review as a basis for the analysis.