Secondly, supervision complements the central bank’s market intelligence system with a detailed knowledge of the strengths and weaknesses of individual banks and, therefore, of the banking system as a whole. Thirdly, knowledge of developments in the banks’ balance sheets can be important in assessment of macroeconomic conditions.
Fourthly, lender of last resort function has a potential for moral hazard in the system and may cause banks to gamble for resurrection, requiring the central bank to ensure that banks are well supervised. Fifthly, there are substantial economies of scale, especially when there is scarcity of skilled professionals in the area of finance.