Lessons Learned from the Financial Crisis for Financial Stability and Banking Supervision

32 Pages Posted: 4 May 2011

Date Written: December 10, 2010

Abstract

The financial crisis that began in 2007 has revealed a need for a new supervisory and regulatory approach aimed at strengthening the system and containing the risk of future financial and economic disruptions. Three ingredients are needed to ensure financial stability: robust analysis, better regulation, and international cooperation. First, financial stability analysis must be improved to take full account of the different sources of systemic risk. Data coverage of the balance sheets of both non-bank financial institutions and the non-financial sectors should be increased. Moreover, to address the problems raised by the interconnections among financial institutions more granular and timely information on their exposures is needed. There must be further integration of macro- and micro-information and an upgrading of financial stability models. The second ingredient is the design of robust regulatory measures. Under the auspices of the G20 and the Financial Stability Board, the Basel Committee on Banking Supervision recently put forward substantial proposals on capital and liquidity. They will result in more robust capital base, lower leverage, less cyclical capital rules and better control of liquidity risk. Finally, the third ingredient is strong international cooperation. Ensuring more effective exchanges of information among supervisors in different jurisdictions and successful common actions is key in preserving financial integration, while avoiding negative cross-border spill-overs. Better resolution regimes are part of the efforts to ensure that the crisis of one institution does not impair the ability of the financial markets to provide essential services to the economy.

Keywords: financial crisis, international cooperation, macroprudential analysis, procyclicality, prudential regulation, stress tests

JEL Classification: G01, G18, G28

Suggested Citation

De Vincenzo, Alessio and Freni, Maria Alessandra and Generale, Andrea and Nicoletti-Altimari, Sergio and Quagliariello, Mario, Lessons Learned from the Financial Crisis for Financial Stability and Banking Supervision (December 10, 2010). Bank of Italy Occasional Paper No. 76. Available at SSRN: https://ssrn.com/abstract=1825969 or http://dx.doi.org/10.2139/ssrn.1825969

Alessio De Vincenzo

Bank of Italy ( email )

Via Nazionale, 187
00184 Roma
Italy
+39-06-47924446 (Phone)

Maria Alessandra Freni

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Andrea Generale

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Sergio Nicoletti-Altimari (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Mario Quagliariello

European Banking Authority ( email )

Floor 46
One Canada Square, Canary Wharf
London, E14 5AA
United Kingdom

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