Micro-prudential vs Macro-prudential Regulation

Abstract

The recent global financial crisis was caused, among others, by the interaction of micro and macro elements, so it is important for regulatory policies to cover these interactions as the objective is to decrease future crises or at least to minimize their effects. Macroprudential policies are very useful, but their main objective is not yet well highlighted and quantified, such as price stability in the case of monetary policy, for example. Regulators need to strike a balance between the micro and macro prudential approach to financial stability. The paper looks at the differences and similarities between micro-prudential and macro-prudential from the perspectives of financial regulation.

Keywords

• macro-prudential
• micro-prudential
• prudential regulation
• supervision