SYSTEMIC RISK AND MACROPRUDENTIAL POLICY IN THE BANKING SECTOR

Abstract

The purpose of this paper is to provide a perspective on the crucial importance of financial stability and the significant role of prudential regulations and banking supervision to ensure the solvency and viability of the banking system. The recent global financial crisis revealed certain week points in regulation concerning supervision and oversight of the financial system as a whole and showed that microprudential supervision could not prevent the increase of excessive risks in the financial system and did not have the means to stop the emergence of systemic risk and to mitigate its effects. It therefore became clear that a macroprudential dimension complementing micro-level supervision was necessary and financial regulators began to focus on preventing damage from systemic risk.

Keywords

• systemic risk
• financial stability
• banking crises
• contagion
• macroprudential policy
• prudential capital requirements