How Can Such Regulation Support Financial Stability Case Study
Nearly 8 years after the financial crisis very few individuals have actually faced charges, a point which has resulted in understandable anger from both member of the public and politicians. In order for regulators to maintain their “social licence”, they need to operate in a fair and accountable way, working with the interests of society in mind . The new remuneration rules and the SMR are introduced by a joint regulatory approach. The regimes are aligned to specific interests of the regulators: the PRA focuses on those who have a large potential impact on the financial health of a firm and the FCA rather looks more widely at those who can have an impact on the firm’s customers. As a result, the introduction of the SMR as a new liability regime
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How can such regulation support financial stability?
The regulators’ hopes such stringent rules to support financial stability, it is its true-end objective. Financial stability is defined in terms of its ability to facilitate and enhance economic processes, manage risks, and absorb shocks . There is however as yet no widely accepted model of financial stability although financial stability can be defined as an “absence of instability” and is therefore threated by systemic risk (if one bank in the system goes under, it may pull down others) or other disturbance of the financial system or its integrity . The SMR and the ever-stringent remuneration rules imposed by the UK regulators as a believe that micro-prudential supervision will maximise economic efficiency at the level of each bank or financial institution. In the absence of such bonus policies, it might cause insolvencies and ultimately market failures (example of mis-selling of insurances or Libor manipulations as cited above) triggering systemic risk and undermining financial …show more content…
Regulators argue that this would provide better risk management and eliminate systemic failure. The regulators also argue that the more significant the firm is, the greater potential there is that the firm’s activities pose a risk to financial stability and therefore the more stringent the remuneration requirements
How can such regulation support financial stability?
The regulators’ hopes such stringent rules to support financial stability, it is its true-end objective. Financial stability is defined in terms of its ability to facilitate and enhance economic processes, manage risks, and absorb shocks . There is however as yet no widely accepted model of financial stability although financial stability can be defined as an “absence of instability” and is therefore threated by systemic risk (if one bank in the system goes under, it may pull down others) or other disturbance of the financial system or its integrity . The SMR and the ever-stringent remuneration rules imposed by the UK regulators as a believe that micro-prudential supervision will maximise economic efficiency at the level of each bank or financial institution. In the absence of such bonus policies, it might cause insolvencies and ultimately market failures (example of mis-selling of insurances or Libor manipulations as cited above) triggering systemic risk and undermining financial …show more content…
Regulators argue that this would provide better risk management and eliminate systemic failure. The regulators also argue that the more significant the firm is, the greater potential there is that the firm’s activities pose a risk to financial stability and therefore the more stringent the remuneration requirements