So there was a situation where banks could pass on any losses to someone else while keeping any profits. They had an incentive to gamble with other people’s money. So, we need to make it possible for banks to fail without causing the whole system to collapse. And we need to make sure that profit-makers are also loss-takers.
In this light, central banks closely monitor macroeconomic and financial market developments, collect information regarding financial transactions, and function as the lenders of last resort to individual financial institutions with the aim of achieving financial stability. Thus, the use of these specific skills, knowledge, and functions is considered effective as a means of optimizing the effects of macroprudential policy.