Examination of the various proposals for strengthening regulatory standards for banks has focused, with good reason, on weighing their benefits and costs.
The new framework has three parts - a minimum, a conservation buffer and a countercyclical buffer - and is macroprudential in nature. That is, it reduces both the likelihood of excessive credit creation when times are good and the possibility of a credit crunch when times turn bad, reducing systemic risks that precipitate crises like the one we have just lived through.
The reforms are being introduced in a way that will not impede economic recovery, while providing necessary time for implementation in individual jurisdictions. In order to make sure the new framework is effective, we will need to make certain that it provides benefits to the system from day one, ensure that banks and the public sector are able to respond appropriately to shocks when they inevitably occur, and do more to address systemic risks contained outside traditional banks.
© BIS - Bank for International Settlements
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article