ABSTRACT
This chapter discusses how supervision can mitigate financial system performance problems. The problems to be addressed must be selected carefully because regulators’ ability to improve system performance is limited. First, regulators almost always have limited resources, and there is little point in giving the regulators powers they cannot use. Second, regulation imposes costs on the regulated, and such costs should not be imposed unless there is a strong case that at least commensurate social benefits are being obtained.
