Daily Archives: December 8, 2010

By Michael Pomerleano

In response to the financial crisis, the most immediate fundamental reform adopted by several developed countries is to have a “systemic regulator” overseeing the stability of the financial system as a whole. Through data gathering, analysis and ultimately regulation, the systemic regulator is expected is expected to mitigate the risks associated with highly inter-dependent relationships between financial institutions. Many central banks are receiving significant new responsibilities for macroprudential supervision. Changes to the UK regulatory framework in 2010 gave the Bank of England responsibility for microprudential and macroprudential regulation. In the US, the Dodd-Frank Act established the Financial Stability Oversight Council, to be led by Treasury Secretary including the heads of the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

Several arguments have been put forward for justifying why central banks are receiving a prominent role in macroprudential supervision: financial supervision offer insights into the condition of financial institutions that is essential in the conduct of monetary policy; and central banks are inextricably involved in the financial stability function through their lender-of-last-resort function.