As I noted earlier, financial stability is fostered through sound and appropriate regulatory and supervisory policies. Regulatory policies – including requirements for capital adequacy and disclosure provisions for financial institutions and effective risk management systems – can provide the basis for banks to act in a manner which is conducive to fostering a stable financial system.
These policies are – so to speak – the “first line of defence” for stability. Through on- and off-side supervision, compliance with regulations and the identification of emerging risks are checked further. The existence of deposit insurance funds reduces the risk of bank depositor runs. In all of this, there is a micro-prudential focus on the supervision of individual financial institutions.