BIS paper advocates macroprudential regulation

What does macroprudential mean? According to the author, “The objective of the macroprudential approach is to limit the risk of episodes of financial distress sign significant losses in terms of the real output of the economy as a whole.” In contrast, microprudential regulation tries to limit losses at any one specific institution.

Views on risk differ as well. “In finance theory, we are used to thinking that the risk of a portfolio depends on some exogenous risk factors. The macroprudential

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