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A third set of functions that central banks perform relate to oversight and regulation of commercial banks’ risk-related features, which are enforced through regular audits and asset/liability valuations. Central banks research and identify practices that constitute risk that would otherwise be unknown or unquantified. This form of regulatory oversight ensures that commercial banks operate within the safe limits that have been set out by the central bank to prevent excessive risk-taking. The continuous nature of central banks’ investigation and oversight enforced by this regulation helps promote transparency in the banking sector.

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