Unless the authorities take into account the impact of the collective behaviour of institutions on economic outcomes, they may fail to monitor risks and take remedial action appropriately. Where does the perspective of supervisors fit along this intentionally stylised micro-/macro-prudential spectrum? In principle, it could be located anywhere. In practice, I suspect that the micro-prudential elements still predominate.
To be sure, an increasing number of supervisors would feel quite comfortable with being associated with the task of limiting systemic risk. Certainly, references to the systemic costs of failures in the rationalisation of policies are common.