As a result of these measures, market rates and bank lending rates have been declining. The Bank will continue to maintain the extremely accommodative financial environment so as to help the economy achieve a self-sustaining recovery in domestic private demand. Another important responsibility of the Bank is to ensure financial market stability.
The banking sector is therefore prone to contagion as soon as confidence in any bank is undermined. These characteristics give rise to the commonly accepted approach of regulating banks in a discretionary manner. A rules-based approach to banking regulation would be inappropriate because every case of distress in the system is unique. Supervision consequently has to be risk-based and proactive.