The bank regulatory framework sets the core architectural requirements for the banking system, but it isn’t enough to set the rules and walk away like Voltaire’s god.
The potential consequences of disruption in the financial system are so far-reaching, and the erosion of market discipline resulting from the government safety net sufficiently material, that it is neither safe nor reasonable to rely entirely on after-the-fact enforcement to ensure regulatory compliance. Supervisors are in a good position to monitor individual firms’ idiosyncratic risks.