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date: 26 February 2021

Abstract and Keywords

This chapter discusses the micro- and macro-prudential regulation of banks and investment firms as a means of protecting depositors and investors as well as minimizing systemic risk. After providing an overview of the objectives of micro- and macro-prudential regulation and the causes of systemic risks, it looks at the taxonomies of micro-prudential, macro-prudential, and dual-purpose tools of financial regulation. It also considers risk management, corporate governance, and risk culture at the firm level. The discussion then shifts to some policy implications for further regulation of financial institutions, with particular reference to tools that promote the soundness of individual firms and financial stability (e.g. disclosure and deposit insurance). Finally, the chapter examines the conflicts that arise between traditional micro- and macro-economic policies owing to their interaction on financial markets.

Keywords: micro-prudential regulation, banks, investment firms, macro-prudential regulation, systemic risks, risk management, financial stability, micro-economic policy, macro-economic policy, financial markets

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