Large and Complex Financial Institutions: Challenges and Policy Responses: Lessons from Sweden

R. Johnston, Balázs Horváth, Luca Errico and Jingqing Chai

No 2003/001, IMF Policy Discussion Papers from International Monetary Fund

Abstract: This paper examines the regulatory and supervisory implications stemming from the dominance of large and complex financial institutions, drawing on the recent Financial Sector Assessment Program (FSAP) mission work on Sweden. The analysis highlights the importance of consolidated supervision, of a greater emphasis on effective management and corporate governance structures, and of measures strengthening the disciplinary role of the private sector. It calls for developing credible liquidity and crisis management arrangements through appropriate attention to the cross-product and cross-border nature of large and complex financial institution (LCFI) operations. Strengthened supervisory and regulatory responses will enable financial markets to better assess the nature and sources of residual risks they have to face and, on this basis, to develop more effective risk-mitigating measures.

Keywords: PDP; Swedish LCFIs; financial institution; solvency support; financial institution solvency; market discipline; Large and complex financial institutions; moral hazard; policy lessons; LCFI operations; systemic importance; business name; market confidence; LCFIs active; LCFI's banking; Stress testing; Financial sector; Baltics (search for similar items in EconPapers)
Pages: 25
Date: 2003-03-01
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