What does “prudential supervision” mean?

Prudential supervision is the regulatory oversight of financial institutions, in particular banks, insurance companies and other financial service providers, to ensure their stability, solvency and risk management.

The word “prudential” is derived from “prudence” (wisdom or caution) and refers to ensuring a stable financial system environment.

The core objectives of prudential supervision are: Protecting deposits and policyholders,
avoiding systemic risks in the financial sector, and monitoring compliance with regulatory requirements such as capital adequacy requirements or liquidity guidelines.