Stronger regulation is not the only reason banks will become less likely to fail. Sharper supervision will play a role as well, both at the level of the individual firm and at the system as a whole. With respect to micro-prudential (individual firm) supervision, the authorities have become more forward-looking and more pro-active, making judgements on firms’ business models and strategies and on firms’ ability to execute their chosen strategy successfully. The authorities have also introduced a new concept, macro-prudential (economy-wide) supervision. Here, the authorities aim to analyse the system as whole, asssess the risks to financial stability and devise measures to mitigate these risks, including the risks that may arise from non-bank financial institutions and from shadow banking. Together, these supervisory measures reinforce regulatory reform and should make banks less likely to fail.
KeywordsCentral Bank Inside Trading Monetary Policy Committee Loss Give Default Risk Appetite
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