Under this approach, examiners focus their on-site reviews on those activities that appear to pose the greatest risks to each individual banking organization, with particular attention to the bank's procedures for evaluating, monitoring, and managing those risks. The objective is to address weaknesses in management and internal controls before, rather than after, financial performance suffers.
In particular, the market does not give a firm guidance: if the central bank always followed the market in deciding what collateral is good, it could not add much to the liquidity of the markets and could not do its job to calm the situation in the case of market stress or panic.