Concern with bank failures and crises due to the increased volume and complexity of banking risks has emphasised banking regulatory policy that is aimed towards helping to ensure bank safety. In response to the changing banking environment, prudential supervision has increased in importance. This study is an empirical evaluation of the impact of the present and evolving supervisory system in Zimbabwe. The ultimate aim is to identify the most appropriate system that can best meet supervisory objectives. It is found that capital adequacy supervision is a central requirement for effective supervision. Three research methods were applied to the problem: field survey, theory and related statistical analysis, and simulation. The field survey established the pressures leading to supervision, and the objectives, instruments and likely effects of supervision in Zimbabwe. Theory and practical policy considerations were then used to draw out the potential empirical effects of supervision. For statistical testing purposes, supervision was proxied as the imposition of capital adequacy constraints. The general methodological approach used was to analyse trends in performance and condition of banks before and after the implementation of supervision. Since the Zimbabwean supervisory system is new, a comparative study of other developing countries' supervision was undertaken. Non-statistical, financial simulation experiments were then carried out to illustrate more clearly the important policy implications of the results. xviii The results confirmed the importance of capital adequacy analysis. It was concluded that capital ratios should be strengthened as volume of operations increased and the operating environment became risky. Whilst gearing ratios were useful in relating the volume of operations to capital strength, the results indicated the comparative suitability of adopting the risk assets ratios which facilitates more detailed risk appraisal. However, it was concluded that capital ratios, used alone, are not adequate indicators of overall prudential soundness. Close and adequate monitoring of all bank operations are also essential.