Microprudential regulation

The term microprudential regulation or microprudential supervision refers to firm-level oversight or financial regulation by regulators of financial institutions, "ensuring the balance sheets of individual institutions are robust to shocks".[1]

Aims

The motivation for micro-prudential regulation is rooted in consumer protection: ensuring solvency of financial institutions strengthens consumer confidence in the individual firms and the financial system as a whole. In addition, if a large number of financial firms fail at the same time, this can disrupt the overall financial system. Therefore, micro-prudential regulation also reduces systemic risk.

Standards

Micro-prudential regulation involves enforcing standards, e.g. the Basel III global regulatory standards for bank capital adequacy, leverage ratios and liquidity.

References

  1. ↑ Dr Alan Bollard, Bernard Hodgetts, and Mike Hannah. Where we are going with macro and micro-prudential policies in New Zealand? A speech delivered to the Basel III Conference in Sydney On 25 March 2011. http://www.rbnz.govt.nz/research_and_publications/speeches/2011/4327011.html

See also