Banking BIS Review 77/1998  -6-  supervisors are the second line of risk defense in their examination of lending procedures for safety and soundness. We neither try, nor should we endeavor, to micro-manage bank lending activity. We have nonetheless built up significant capabilities in evaluating the complex lending practices in OTC derivatives markets and hedge funds.
Similarly, if the financial markets cease to function properly, be it because of unexpected events, excessive risk taking or misconduct, everybody is bound to lose. The negative externalities of a banking crisis can be huge, as we all well know. Therefore it is a in the public interest to design the regulatory framework and set up institutions, which reduce the probability of systemic crises.