It may prevent it in a limited way, for example, in proportion to capital. It involves the formulation and issuance of specific rules and regulations, under governing law, for the conduct of business. Supervision is more qualitative. It depends upon the judgment of an examiner or inspector. It involves the safety and soundness of specific institutions, in the light of the general continuous review of the activities of the entire industry to ensure prudent operation and compliance with law and regulation.
Oversight is a form of general supervision.
It typically is used to refer to the monitoring of a corporate group, as opposed to a specific firm. Oversight is considered much less intrusive than supervision and might be viewed as surveillance, normally conducted at a distance, while supervision involves close, first-hand, observation and analysis. Recognizing that I am not exactly an impartial observer of the regulatory and supervisory schemes, I am partial to supervision. I regard a regulator as a flag man on the highway telling motorists when to stop and when to go and under what conditions they may use the highway. The problem is that, if the flag man is not up to the job, traffic backs up and motorists switch to other highways or to airplanes.