The low interest rate environment following the 2008 financial crisis shifted the supervisory focus away from interest rate risk to other risks, just as the current rising rate environment required supervisors to return to interest rate and emerging credit risk. 10 Supervision must also complement regulation. While regulation is a critical tool, it operates with a significant lag for most developed banking systems.
This is where supervision can complement regulation to address emerging threats and risks by allowing supervisors to pivot to those fundamental risks that may be most salient based on that bank’s business model and evolving economic conditions. Regulation In response to the recent bank failures, it is tempting to engage in a wholesale revision of the bank regulatory framework.