In a crisis, the Federal Reserve, to be sure, could always flood the market with liquidity through open market operations and discount window loans; at times it has stood ready to do so, and it does not need supervisory and regulatory responsibilities to exercise that power.
But while sometimes BIS Review 31/1997  necessary in times of crises, such an approach may be costly and distortive to economic incentives and long-term growth, as well as an insufficient remedy. Supervisory and regulatory responsibilities give the Federal Reserve both the insight and the authority to use techniques that are less blunt and more precisely calibrated to the problem at hand.