This becomes possible if the central bank also has responsibility for bank supervision. 22. The second and broader argument is that there is a natural synergy between monetary policy which is macro-prudential and bank supervision which is micro-prudential. The micro-level information coming from supervision of individual institutions can be a valuable input for shaping the macro perspective.
Vice versa, a broad macro level understanding of trends can be effective in instituting prudential safeguards at the micro institutional level. 23. Admittedly, there are strong arguments to the contrary, in support of keeping bank regulation and supervision away from central banks. By far the most persuasive argument stems from the moral hazard perspective.