Adopting a risk-focused approach improves the examination process by targeting examinations more directly on specific institutions’ problems. However, it also makes such examinations more challenging for examiners because they must be knowledgeable about each bank’s business activities, risk profiles, and risk management systems.
Taking risks without an appropriate premium, might endanger the ability of some entities to honour their obligations. This leads us directly to the field of financial stability which is a major concern for a central bank, both from a monetary and a real economy perspective.