Prudential perspectives

Yvonne Kreis, Dietmar Leisen and Jorge Ponce

Chapter 9 in Systemic Risk:History, Measurement and Regulation, 2019, pp 121-140 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Prudential regulation of a financial system needs to take complementary perspectives to mitigate as many risks as possible. A micro-prudential view focuses on individual institutions and markets. This approach assumes that, if financial institutions are safe and sound individually, then the financial system will be stable. The accords of Basel I and II represent examples of this view applied to banking regulation. Unfortunately, the global financial crisis makes it clear that this approach has limited capacity to control market failures leading to systemic risk. Point in time characteristics of financial systems (e.g., the size and interconnectedness of financial institutions) and dynamic considerations (e.g., procyclicality) generally shape the micro-prudential approach and justify a macro-prudential perspective. We will study these perspectives in Sections 9.1 and 9.2…

Keywords: Systemic Risk; Financial Stability; Financial Regulation; Macro-Prudential Regulation; Transmission Channels; Global Financial Crisis; Risk Measurement; Cross-sectional Risk (search for similar items in EconPapers)
JEL-codes: G01 G15 G32 (search for similar items in EconPapers)
Date: 2019
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