For example, consider the distinction between (1) making sure institutions are managing all of their material risks and (2) instructing banks to make certain credit allocation decisions, that is, telling banks to make or not make loans to certain industries.
The first objective-making sure financial institutions manage their material risks-is one of the central functions of a bank supervisor, and is fundamental to safety and soundness. But it is equally clear that the second objective-influencing a bank to make certain credit allocation decisions-is not the role of a banking regulator.