Macro-prudential oversight is, to put it simply, the missing link between the different approaches of a central bank and a financial supervisor. A central bank significantly promotes financial stability by aiming at low inflation, sound payment systems and sustainable credit growth. Supervisors exercise their responsibility for the stability of individual financial institutions by ensuring that they have adequate buffers to withstand shocks.
The problem is that both responsibilities, although closely interrelated, have been poorly attuned. Let me explain. 21. In the run-up to the crisis, most central banks warned against the risks to the financial system. But these warnings did not prove meaningful, as they were not effectively translated into mitigating action by supervisors.