Prudential Supervision: Why is it Important and What are the Issues?

Abstract

This paper outlines what problems asymmetric information creates for the financial system and shows and shows that the presence of asymmetric information explains why banks are so important. The paper then goes on to explain why prudential supervision of these institutions is needed, and what forms it takes. The paper ends by outlining the key issues in the design of prudential supervision and uses them to organize a general discussion of the papers in this conference volume, providing a brief overview of their content. The linkages between these papers are explored, which highlights some general conclusions.