Banks in effect facilitate the economic exchange between depositors and borrowers by playing a role that balances up the information asymmetry. However, there is always the question: who monitors the monitors? In the financial system, a number of mechanisms perform this role: shareholders, and those appointed by them (boards of directors and auditors), creditors, rating agencies, and regulators.
Experience suggests that market-based solutions - sometimes with regulatory prompting and encouragement - can often result in a better performing financial system than over-relying on regulatory interventions. The Reserve Bank thus balances self and market discipline practices and requirements, with additional regulatory requirements. We are acutely aware of the importance of getting this balance right, and the risks of over-regulation.