Macro and Micro Prudential Regulatory Failures Amongst Financial Institutions in the United Kingdom: Lessons from Australia

Abstract:     
This paper aims to fill a gap in the literature on banking regulation, financial development and financial stability. It also extends the new literature on Basel III. The author’s data shows that liquidity and leverage ratios played a significant role in the downfall of some UK banks. Australian banks had better liquidity and leverage ratios and have withstood the financial crisis better than UK banks. Micro prudential failures can be seen amongst this data. Contemporary banking is shaped by securitisation, a complex process which aims to increase profit and shift risks. Securitisation and globalisation in banking increases systemic risks. Macro prudential regulation is thus equally important as micro prudential regulation. The Financial Development Index 2009 of the World Economic Forum revealed that the UK needs to make improvements in regulation and oversight to provide a more stable financial environment. The author concludes that liquidity and bank leverage in the UK need to be controlled better. Basel III has introduced some recommendations but has its limitations.

Number of Pages in PDF File: 22

Keywords: Financial Crisis, Banking Regulation, Basel III, Liquidity, Leverage, Financial Development, Financial Stability

JEL Classification: G01, G21, G28, G38, G30, O57

working papers series