Historically, financial regulation and supervision has had a micro prudential focus, that is, it has focussed on individual financial firms. The underlying rationale was that if individual firms were safe and sound, then so too would be the overall financial system. Thus, policies that were desirable for individual firms were seen as also desirable for the broader financial system.
By doing so, the central bank would buy insurance against the risk of a harmful asset boom-bust cycle, with its potential costs in terms of macroeconomic and financial stability. The main argument against this approach is that the premium stemming from such a policy framework may be excessively high.