I would also note that supervision can sometimes be part of the “problem” rather than part of the solution – particularly when there has been excessive regulatory forbearance and/or excessive reliance on the public safety net. I believe that supervision should be seen as only one of the factors influencing the health of the financial system.
In this regard I am pleased to note that the Basel Core Principles recognise this by identifying the preconditions for effective banking supervision, including sound and sustainable macro-economic policies, a well developed public infrastructure, and effective market disciplines. I am sure that we can all agree that all of these factors are vital to the development of a sound financial system.