Supervisors should be guided by the principle: “As much entrepreneurial leeway as possible, yet as much state supervision as required”. There have been some recent proposals to confer more supervisory tasks to the private sector (G30). In principle, increased mutual monitoring among the banks, and hence a strengthening of market discipline, is a welcome idea. Nevertheless, conceptual and practical problems should not be overlooked.
For instance, more self-regulation by the market participants implies a transfer of legislative powers, but it does not mean that responsibility for resolving systemic crises would also shift to the private sector. State supervision will remain necessary as long as systemic risks exist which cannot be limited sufficiently through preventive measures or eliminated within the context of market control.