It also typically involves some form of on-site examination of banks by the supervisors. In contrast, the New Zealand supervisory framework quite deliberately avoids the use of prudential regulation - except in limited areas, such as minimum capital ratios and limits on lending to related parties. And the Reserve Bank does not conduct on-site examinations of banks.
Our supervisory framework is deliberately light-handed in nature, in the sense that we minimise our intrusion into the management of banks' risks and the structure of their operations. Instead, we try to foster robust "self discipline" in banks through the corporate governance and disclosure frameworks we have established.