Prudential Regulation

cat_xx

Could somebody please explain what is meant by prudential regulation to me? I can't seem to find a meaning for it that makes sense to me!
Thanks.

Tom Young

Context might be good. Taking it literally though, there are different 'strains' of regulation, if you like. Examples: Light-touch; Self; ex ante; ex post, etc.

Prudential, I guess, must be taken literally. Thus, it means taking all prudent steps to properly and conscientiously regulate a given market.

Out of context, this is a difficult question to address, because some markets are just regulated in entirely different ways to others.

In any event, if we take banking, where light-touch used to be the order of the day, that would be a recent example of imprudent regulation in the context of what went on during the housing boom for example. Likewise, credit card debt, overdraft debt, tracker mortgages, etc.

Hope this helps.

cat_xx

Thank you, it would be in the context of banking.

No.2

prudential regulation in the context of banking refers to the oversight of a credit institution for the purposes of ensuring that it has made adequate provision for the risks which may impact upon its business. Typically, although a credit institution may be technically complying with all laws applying to it, a regulator may still require that it do something beyond that (e.g. increase its capital reserves by 2% above normal /other banks) where it is satisfied that such a rule is justified in light of the circumstances of the firm.

Micro-prudential regulation refers to the regulation of individual firms; Macro-prudential regulation refers to the regulation of the financial system as a whole (i.e. all/all systemically important firms). The Honohan Report (2010) is a good introduction, and in particular on how Ireland did neither type of prudential regulation particularly well in the run up to the crash of '08 (see a copy here - and chapters 4/5 in particular as an introduction to the principle and account of local failings respectively).

ResearchWill

No.2 wrote: »

prudential regulation in the context of banking refers to the oversight of a credit institution for the purposes of ensuring that it has made adequate provision for the risks which may impact upon its business. Typically, although a credit institution may be technically complying with all laws applying to it, a regulator may still require that it do something beyond that (e.g. increase its capital reserves by 2% above normal /other banks) where it is satisfied that such a rule is justified in light of the circumstances of the firm.

Micro-prudential regulation refers to the regulation of individual firms; Macro-prudential regulation refers to the regulation of the financial system as a whole (i.e. all/all systemically important firms). The Honohan Report (2010) is a good introduction, and in particular on how Ireland did neither type of prudential regulation particularly well in the run up to the crash of '08 (see a copy here - and chapters 4/5 in particular as an introduction to the principle and account of local failings respectively).

While I know little of banking and banking regulation, i have to say thank you for the above post and link. Such posts are the reason I come back to boards. I have today learned something new.

Tom Young

No.2 wrote: »

prudential regulation in the context of banking refers to the oversight of a credit institution for the purposes of ensuring that it has made adequate provision for the risks which may impact upon its business. Typically, although a credit institution may be technically complying with all laws applying to it, a regulator may still require that it do something beyond that (e.g. increase its capital reserves by 2% above normal /other banks) where it is satisfied that such a rule is justified in light of the circumstances of the firm.

Micro-prudential regulation refers to the regulation of individual firms; Macro-prudential regulation refers to the regulation of the financial system as a whole (i.e. all/all systemically important firms). The Honohan Report (2010) is a good introduction, and in particular on how Ireland did neither type of prudential regulation particularly well in the run up to the crash of '08 (see a copy here - and chapters 4/5 in particular as an introduction to the principle and account of local failings respectively).

An excellent and more relevant summary than m

cat_xx

No.2 wrote: »

prudential regulation in the context of banking refers to the oversight of a credit institution for the purposes of ensuring that it has made adequate provision for the risks which may impact upon its business. Typically, although a credit institution may be technically complying with all laws applying to it, a regulator may still require that it do something beyond that (e.g. increase its capital reserves by 2% above normal /other banks) where it is satisfied that such a rule is justified in light of the circumstances of the firm.

Micro-prudential regulation refers to the regulation of individual firms; Macro-prudential regulation refers to the regulation of the financial system as a whole (i.e. all/all systemically important firms). The Honohan Report (2010) is a good introduction, and in particular on how Ireland did neither type of prudential regulation particularly well in the run up to the crash of '08 (see a copy here - and chapters 4/5 in particular as an introduction to the principle and account of local failings respectively).

Thanks a million, you have helped me so much