Banking supervision is considered one of the fundamental pillars for ensuring financial stability, the soundness of the monetary system, and public trust in the banking network. In Iran’s legal system, the Central Bank, as the key institution responsible for banking supervision, enjoys a multidimensional position that includes constitutive, regulatory, operational, and Sharia-based supervisory roles. This article, focusing on the legal and institutional structure of banking supervision in Iran, seeks to explain the functions, tools, and challenges facing this system, and attempts to provide a coherent picture of the current situation as well as its reform potential. The findings of the study indicate that Iran’s legal framework for banking supervision, in terms of the scope of authority and diversity of supervisory instruments, is relatively broad and comprehensive. However, at the institutional and executive levels, it faces significant shortcomings. The concentration of multiple functions within the Central Bank, the weakness of complementary supervisory institutions, the inefficiency of disciplinary proceedings against banking violations, and the challenges of supervising certain financial institutions are among the most important obstacles to effective supervision. In practice, these challenges may lead to reduced supervisory efficiency, weakened financial discipline, and increased systemic risks. The article also adopts a comparative perspective, highlighting certain experiences of advanced banking systems regarding institutional separation, the independence of supervisory authorities, and the use of modern supervisory approaches. It shows that improving the quality of banking supervision requires not merely expanding legal authority, but more importantly redesigning institutional structures and enhancing implementation mechanisms. Finally, it concludes that transforming Iran’s banking supervision system requires an integrated, forward-looking approach aligned with the indigenous characteristics of the country’s monetary and legal system.