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Prudential perspectives

In: Systemic Risk History, Measurement and Regulation

Author

Listed:
  • Yvonne Kreis
  • Dietmar Leisen
  • Jorge Ponce

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…

Suggested Citation

  • Yvonne Kreis & Dietmar Leisen & Jorge Ponce, 2019. "Prudential perspectives," World Scientific Book Chapters, in: Systemic Risk History, Measurement and Regulation, chapter 9, pages 121-140, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811201066_0009
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    More about this item

    Keywords

    Systemic Risk; Financial Stability; Financial Regulation; Macro-Prudential Regulation; Transmission Channels; Global Financial Crisis; Risk Measurement; Cross-sectional Risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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