Minutes of Macro-Finance Salon (No. 12): Systemic Risk and Macro-Prudential Regulation

2014-10-19 IMI

Speaker: Nicholas Beale, Chairman of Sciteb, Visiting Fellow at the Isaac Newton Institute 19 October 2014, Beijing Factors identified to explain the financial crack down in 2008 -It is noticeable that financial regulation was unable to keep pace with financial innovation. -The system itself was fragmented and did not address important conflict of interest. The issue of individual and systemic risk was raised by the crisis in which regulations was focused on promoting health of individual firm rather than the whole system. Many proposals for financial reform address the need for systemic regulation- that is for regulations to focus on soundness of the whole financial system rather than individual institutions. Individual versus systemic risk and the Regulator's Dilemma -A super linear cost requires systemic regulation and a simple measure predict much of systemic cost variation. -Leverage ratio is a better predictor of financial failure than risk-based capital ratio and capital for systemic cost varies on pattern of risk correlation across the system. Areas of research directions -Use of stress test data to explore financial system dynamic -Establish agent base model from CRISIS program to examine crisis stability and explore the cost and benefits associated with regulatory system. -The concept of “immune” system was introduced for the economy by injecting capital into reserve to prevent another crisis. The concerned for “immune” system was identify that it was costly but also extremely complex. The economy also needs to have a systemic robust regulation to try to minimize or eliminate mistrusts among institutions. For further details All developments regarding IMI can be followed at http://imi.org.cn/. For further information, contact via imi@ruc.edu.cn or on +86-10-62516755.

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Minutes of Macro-Finance Salon (No. 12): Systemic Risk and Macro-Prudential Regulation

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