Towards Consistent and Effective Risk Indicators

Dimitrios Laskos and Antonio Sánchez Serrano

As was explained in the previous chapter, during the global financial crises it became apparent that bank supervisory and regulatory authorities had to enhance their ability to assess potential risks and vulnerabilities of the financial sector, and to develop those analytical and procedural tools required to verify its robustness and soundness. At that point, the spotlight was mainly on individual institutions and individual risks in order to identify, at an early stage, trends, potential risks and vulnerabilities stemming at the microprudential level, across borders and across sectors – thus ensuring an effective surveillance and assessment of their potential systemic risks.

However, one of the first challenges bank regulators and supervisors encountered was to fill in the data gaps that these crises had revealed with more timely and “fit for use” risk indicators, allowing them to keep pace with the financial innovation and the increasing complexity of the global financial system, including the ever-increasing interdependencies between institutions. The lack of such information led to a collective call by various national authorities and international organisations, such as