E. Dzhagityan (firstname.lastname@example.org, email@example.com),
National Research University Higher School of Economics, 17, bldg. 1, Malaya Ordynka Str., Moscow, 119017, Russian Federation;
Financial University under the Government of the Russian Federation, Institute for Research of International Economic Relations, 49, Leningradskii Prosp., Moscow, 125993, Russian Federation
Acknowledgements. The article is an output of research project “Macroprudentialism of the contemporary banking regulation as a factor of financial stability” implemented as part of the individual research program of the School of world economy and international affairs at the National Research University Higher School of Economics. Some ideas of this article were presented at the 4th European Conference on Banking and the Economy (ECOBATE) (Winchester, U.K., October 2016) organized by the Association for Research on Banking and the Economy (ARBE) in collaboration with the University of Southampton.
Abstract. The author looks into the optimal model of international banking regulation using principles and mechanism of macroprudential policy. Severity of the recent global financial crisis uncovered a series of deficiencies in traditional (microprudential) regulation. This triggered a broader and advanced understanding of the regulatory framework while putting on the agenda priorities of interrelationships between micro- and macro-levels. In fact, microprudential regulation lacks reliable tools that would address key determinants known for their contribution to financial instability including interconnectedness of systemically important banks, deficiencies of their stress resilience to adverse externalities, and systemic risks that undermine soundness of the financial system. Any of the above stress factors taken in isolation may incite crises, probability of which, however, could be reduced by instruments that link key performance indicators of the banking sector with macro-level dynamics. Although the concept of macroprudential approach in regulation is yet to be finalized, its instruments has already proved their validity and efficiency in navigating regulators with higher accuracy of capital adequacy measurement over the extended time horizon, coping with the excessively increasing assets, limiting credit appetites of banks, and ensuring countercyclicality of banking performance thus smoothening financial cycles. Unlike traditional regulation, the macroprudential domain provides more insights (however, still to a limited extent) into how to balance among the objectives of the post-crisis regulatory paradigm – banking sector dynamics, sustainable economic growth, and financial stability, which all together appear to be a trilemma of the global financial environment. It is believed that further operationalization of macroprudential regulation will add more consistency to national regulatory regimes that will give rise to further internationalization of the Basel Accords including standards and recommendations of Basel III. Despite promising perspectives for minimization of exogenous and endogenous risks in the banking industry, macroprudential mechanism is yet to find fine-tuned analytical tools that would quantify elements that are critical for the settlement of the regulatory ‘trilemma’ aiming at enhanced sustainability of international financial intermediation amid souring macro-level parameters and market pessimism. Besides, international regulators are still in search for the unbiased and rigor criteria of macroprudential institutional framework. Even though central banks are currently the place for macroprudential policy and supervision, the latter demands more rational grouping of, and customized approach for, its functions and responsibilities. This ensued from the specifics of macroprudential policy actions that may ultimately compromise independence of the central bank’s monetary policy, especially in the framework of inflation targeting, and impair financial cycle elasticity. Importance of the institutional design is also urged by closer synchronization of macroprudential policy with other areas of macro-financial management and supervision. This stands in line with macroprudentialism as a driving force of crisis mitigation. However, missing the acceptable macroprudential standards (in addition to instruments) will be seriously affecting shaping the integrated mechanism of banking regulation eligible for the objectives of post-crisis recovery.
Keywords: macroprudential regulation, microprudential regulation, Basel III, post-crisis recovery, banks’ stress resilience, systemic risks, financial stability, monetary policy
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