As Chairman Greenspan has observed, the optimal rate of bank failure is not zero. Banks must be allowed to perform their economic functions of measuring, accepting, and managing risk. Taking and managing risk mean that sometimes risk will have costs, including failure.
In my judgement, the central bank is in a unique position to balance the complex and sometimes conflicting objectives of financial stability and a growing economy. The Fed is less likely to engage in an unnecessarily restrictive or, for that matter, excessively loose, supervisory policy than is an agency focused either solely on bank safety and soundness or solely on growth.