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World Financial Crisis Requires Regulation of Entire Financial System

Satisfactory Essays
1. Introduction
Economists throughout the world have agreed that there is a need of regulation of the financial system in its entirety. This is because, as the financial crisis from 2008 has shown, the micro orientated regulation measures do not suffice. They neglect the build-up of systemic risk and the interconnections within the financial system, which have shown to lead to the amplification of the effects of shocks. Therefore, as a complement to the microprudential framework, a new type of regulation tools is being developed- macroprudential. It aims to prevent the accumulation of systemic risk and improve the stability of the financial system.
In this paper I will focus on explaining in more detail what exactly macroprudential
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However, the term “macroprudential” was first used a year later at a meeting of the Cooke Committee, where the main topic was the potential collection ofdata on maturity transformation in international bank lending. (Clement. 2010. p. 2)
The second occasion on which the term was used was in an unpublished document put together bythe Bank of England on October 9th 1979. It was used to point out some of the shortcomings of microprudential policy and to contrast it to a set of macroprudential regulations. (Clement. 2010. pp. 2-3)
The term was afterwards largely forgotten, until it appeared for the first time in a public document in 1986. It was used by the ECSC in its report on innovations in the banking sector as a policy that supports the stability of the financial system as a whole and the payments mechanism. (BIS. 1986. p. 2 according to Clement. 2010. p. 4)
This was followed by another 6 year period of obscurity up until the 1992 ECSC report discussing the developments in the relations between international banks (Promisel Report. BIS. 1992. according to Clement. 2010. p. 4).
A period of relatively frequent use followed and by the late 1990s records show that it was also used outside the central banks circles. A prominent example is the IMF report “Toward a framework for a sound financial system”, according to which macroprudential supervision should focus
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