Even if an individual supervisor would have seen a built-up of risks, the threshold for concrete measures was high, with no other supervisor seemingly aware of problems in the offing. As a consequence, supervision of financial institutions in key financial centres was too often limited to passive application of the rules.
People did not know how – or were unwilling – to ask whether the rules provided adequate safeguards in the new circumstances. Behind this passiveness were many quite understandable factors. One was supervisors’ uncertainty of their legal powers to intervene in the operations of financial institutions on a discretionary basis.