Effective Regulation of the Financial Sector in the Conditions of Transformation: A Hybrid Vertical Model

Abstract

The financial sector is a critical component of the modern economy, but it is also subject to a variety of risks and challenges that can threaten its stability and sustainability. Politicians and regulators have developed different principles and methods of regulating the financial sector, but the effectiveness of these methods remains a matter of debate. The article is aimed at identifying problems and opportunities to ensure an effective and integrated approach to regulating the financial sector. The article analyzes the evolution of regulation of the financial sector during the period of transformation, explores four levels of regulation of the financial sector, including self-, micro-, meso-, and macro-prudential regulation. A comparative analysis of the main roles, tasks, characteristic risks, as well as interdependence and interrelations between bodies and institutions of prudential regulation is carried out. Based on the analysis of the existing methodology, a new hybrid vertical model of regulation has been proposed, which aims to provide a more efficient and integrated approach to regulating the financial sector. This hybrid model combines the strengths of macro- and meso-prudential regulation to provide a more targeted and accurate approach to risk management in the financial sector. The carried out analysis shows that while each level of regulation has its strengths and limitations, a hybrid approach that combines different levels of regulation can provide a more effective and comprehensive approach to regulating the financial sector. The hybrid vertical model of macro- and mesoregulation proposed by the authors can contribute to further research, discussion and development of financial sector regulation.

Keywords

• regulation of the financial sector
• meso-prudential regulation
• hybrid vertical model
• transformation.