Filter by Categories
Accounting
Banking

Banking




Microprudential Policy Instrument


A policy instrument that a regulatory authority deploys and applies in relation to a single regulated entity or market participant. For example, microprudential instruments may impose exposure limits to a single counterparty and certain liquidity ratios, such as the liquidity coverage ratio (LCR), that set a cap on concentration in specific instruments, e.g., wholesale funding, and promote the use of more liquid instruments.

By nature, such instruments are used to address various types of idiosyncratic risks. Liquidity coverage ratio (LCR) is observed as a means to strengthen the liquidity position of individual banks.

Microprudential instruments are applied to ensure the financial soundness of individuals institution. However, a regulator’s focus on its obligation for systemically important institutions, imposing additional capital (capital surcharge) on such institutions, is tantamount to a macroprudential measure since it aims to curb the risks to the financial system as a whole by improving the ability of certain, systematically important institutions to survive pervasive shocks.



ABC
Banking is an integral part of the modern financial system and plays an important role in an economy. It basically involves the so-called intermediation (e.g., ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*