Successfully Implementing Major Financial Stability Regulatory Reforms: The Risk Weighting Based Controversy (Basel v. Dodd Frank) and the Role of National Supervisors
Chapter in Book Publication, „Recovering from the Global Financial Crisis: Achieving Financial Stability in Times of Uncertainty“ Business Expert Press ISBN 13 978 1 60649 700-5 , 2013
19 Pages Posted: 22 Jun 2011 Last revised: 29 Apr 2014
Date Written: June 22, 2011
As well as a consideration of the role contributed by national supervisors in the successful implementation and enforcement of standards, recommendations and regulations, the significance of clear and unambiguous mandates in enhancing communication between micro prudential supervisors (usually national financial supervisors and central banks) and macro prudential bodies which are responsible for writing the laws that are enforced by micro prudential supervisors, will be highlighted in this paper. This will incorporate a discussion on the advantages and disadvantages inherent in clear, explicit mandates – such a discussion necessitating a distinction between financial stability and monetary policy objectives.
Furthermore, the role of credit ratings and their significance in influencing investor choices and judgments, will be considered as a means of highlighting how they contribute to the neglect of risks, exposures attributed to certain financial instruments, and ultimately, systemic risks which de stabilize the financial system.
Keywords: European Systemic Risk Board, financial stability, credit ratings, Dodd Frank Act, micro prudential supervision, risk weights, European Central Bank, counterparty risks, macro prudential arrangements, central banks, European Supervisory Authorities, monetary policy, risks
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