Policy Views on Macro-Prudential Regulation and Implications of SIFI Designation (and why Resilience Planning for the Financial Sector is a Critical Strategic Response - for financial stability purposes, given the conglomerated nature of the economy, and in preparation tor the ASEAN Economic Community Integration and the wave of free trade agreements) Excerpts from BSP Deputy Governor Speech: ...What we do know is what is always asked in the certification exams for risk professionals: the risk to the whole cannot be just the simple sum of known individual risks. To be more precise, there are co-variances between risk factors and these may in fact be more important than the variances themselves. It is possible that risks that look to be tolerable for each institution and at each transaction will create an aggregate exposure that the whole system cannot effectively manage and sustain. And it is certainly possible that each institution does not fully appreciate the risks that are created by their own transactions because they do not see the network of causal effects that their own balance sheet positions create. With all these in mind, prudential policy-setting now considers a lot more of the “what ifs” and does so from the broader lens of the system as a whole. This is the crux of macroprudential regulation...
Posted on: Sat, 08 Mar 2014 00:16:39 +0000
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