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Regulatory oversight concerned with an institution's safety, financial soundness and management of risk.
Supervision combines information from reports, examinations and discussions with management. The authority assesses risks and can seek corrective action within its legal powers. Requirements and supervisory intensity differ by jurisdiction and institution. An examination can identify a weak process before it causes a loss, while a financial ratio can flag a problem that requires closer investigation.
Imagine a bank whose loans are increasingly concentrated in one troubled industry. Even if those loans have not yet defaulted, a supervisor may examine how the bank measures that exposure, tests adverse scenarios and maintains sufficient capital. The question is whether the bank can withstand deterioration, not simply whether it earned a profit in its latest quarter.
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