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In the collection of his essays published by OUP in 2008, Tommaso Padoa-Schioppa wrote about the discussions that took place at an international level on the essence of banking supervision, the role of banks in the economy and the relationship between banks and public supervision. He unveiled the underlying policy tensions and commented the state of the play under the 2004 Capital Accord of the Basel Committee on Banking Supervision (Basel II) framework and its implementation. He aptly summed up the essence of banking supervision as follows:
… providing liquidity on demand will remain indispensable for the functioning of a market economy; it is the core activity of institutions that we should continue to call ‘banks’; it continues to entail systemic risk. Because it is not possible to supervise an activity without referring to an economic agent that carries it out, the essential step is to identify such an agent via a licensing procedure and to supervise it carefully. Finally, the whole scope of the activity should be regulated and supervised as a bank; regulation and supervision should not be limited merely to the ‘tip of the iceberg’, namely, the ultimate settlement with central bank money.1
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