Microprudential regulation or microprudential supervision is firm-level oversight or financial regulation by regulators of financial institutions, “ensuring the balance sheets of individual institutions are robust to shocks”.
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.
Micro-prudential regulation involves enforcing standards, e.g. the Basel III global regulatory standards for bank capital adequacy, leverage ratios and liquidity.
- ^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. “Archived copy”. Archived from the original on 2013-08-11. Retrieved 2014-03-06.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.