In recent times, the banking system has been characterized by the problem of excess liquidity arising from the expansionary fiscal operations of the three tiers of government, and the rapid monetisation of crude oil receipts. The large injections of liquidity into the system induced rapid monetary expansion that was substantially out of line with prescribed targets.
In particular, it would ensure the independence of the supervisory and regulatory decision-making process from national political pressure, and avoid regulatory capture. For example, a distant supervisor may take action to address risks arising from a bubble in good times that a national supervisor would come under pressure to overlook.