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.