According to the RBA's Turner:
Although boards and senior managements have primary responsibility for maintaining the soundness of ADIs, the capital buffers and risk management practices that they might choose in the absence of regulation may not fully account for the risks that they pose to depositors, the financial system and the economy. As with any firm that is leveraged and where shareholders have limited liability, ADI shareholders and executives receive asymmetric returns, involving substantial upside and limited downside. Furthermore, their risk management decisions will have effects beyond their own institutions. It is for this reason that authorities have widely established systems of prudential regulation and supervision that aim to ensure that deposit-taking institutions are able to honour their financial promises, including to depositors.
