Macroprudential Oversight

Regulations governing the entire financial system.

“Top executives from 13 major banks on Tuesday urged British Prime Minister Gordon Brown to steer clear of short-term regulatory changes when world leaders gather at next week’s G20 summit,” Reuters reported.

Short-term actions would “undermine economic recovery or the bigger goals of medium-term reform,” said a spokesman for the banks attending a meeting with Brown in London.

Regulation is in the spotlight as governments that have committed more than $5 trillion in rescue money to safeguard the financial sector and the wider economy seek to avert any future repeat of the financial crisis.

The new buzzword is “macroprudential oversight,” which refers to supervision of the entire financial system, and one of the major topics was how all systemically important banks are regulated in that context.

This is not the first petition for system-wide financial regulation. Speaking at a monetary policy conference in August 2008, Ben Bernanke called for reform of the U.S. financial regulatory system, arguing:

“Supervisors often focus on the financial conditions of individual institutions in isolation. An alternative approach, which has been called system-wide or macroprudential oversight, would broaden the mandate of regulators and supervisors to encompass consideration of potential systemic risks and weaknesses as well.”