In fact, a zero failure system is likely to be sub-optimal. There is always a danger that people perceive that mere act of an entity being regulated provides a guarantee from the regulator that it is risk free to transact business with the unit. The risks arise due to several problems, mainly related to lack of information.
First, it is difficult to precisely assess even for the regulator how good the internal controls in a regulated entity are on an on-going basis. Frauds that occur in connivance with the management of the bank are even more difficult to detect if they occur between two inspections as the offsite surveillance may not throw up this information.