The third option is to achieve the same objective through the use of regulatory powers. The three steps can be summarised as follows: (i) alerting, (ii) supervising more closely and (iii) regulating. The choice of which instrument to use may vary, depending on the severity of the risk and on the circumstances.
Supervisors must insist on effective risk management and provide as much support as possible for the implementation of needed changes. Recent events have also demonstrated the importance of generous capital cushions for protecting against adverse conditions in financial and credit markets. I have been encouraged by the recently demonstrated ability of many financial institutions, large and small, to raise capital from diverse sources.