How do regulators use capital requirements when undertaking macroprudential supervision of all the banks in the...

How do regulators use capital requirements when undertaking macroprudential supervision of all the banks in the financial system? Explain.

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Macroprudential regulation is the method to financial regulation that focus to reduce risk to the financial system as a whole. In the after-effects of the late-2000s financial crisis, there is a increasing consensus among policymakers and economic researchers about the require to re-orient the normative framework towards a macroprudential perspective.
The main aim of macroprudential regulation is to decrease the risk and the macroeconomic costs of financial instability. It is recognized as a compulsory component to fill the gap between macroeconomic policy and the traditional microprudential regulation of financial institutions.

Use of capital requirements when undertaking the macroprudential supervision :-

Following chart can explains the how regulators use capital requirements when undertaking the macroprudential supervision;

Chart:-

Rahul Sunny answered 1 year ago

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