The regulatory and supervisory practices most effective in promoting good performance and stability in the banking sector are those that force accurate information disclosure, empower private sector monitoring of banks, and foster incentives for private agents to exert corporate control

The behavior of actors in financial systems depends crucially on the incentives that motivate them. The right regulation, supervision, and incentives (including the scope of permissible activities, degree of contestability, and extent of safety net) for financial services can make the sector...