What are prudential policies?
Prudential regulation is a type of financial regulation that requires financial firms to control risks and hold adequate capital as defined by capital requirements, liquidity requirements, by the imposition of concentration risk (or large exposures) limits, and by related reporting and public disclosure requirements …
What policies does the RBA use to maintain financial stability?
One way the Reserve Bank promotes financial stability is through monetary policy. Having a framework for low and stable inflation and sustainable economic growth promotes an environment that will generally be conducive to financial stability.
Who is responsible for the stability of the Australian financial system?
the Reserve Bank
Stability of the financial system is a longstanding responsibility of the Reserve Bank – a mandate reconfirmed by the Government when it introduced significant changes to Australia’s financial regulatory structure in July 1998.
What are the macro prudential tools?
Macroprudential tools can be structural or cyclical. Structural policies are implemented to build lender or borrower resilience to adverse events at any point in the business cycle. For example, the additional capital charges for G-SIBs are a structural tool.
What do you mean by financial stability?
Financial stability is a condition in which an economy’s mechanisms for pricing, allocating, and managing financial risks (credit, liquidity, counterparty, market, etc.) are functioning well enough to contribute to the performance of the economy (as defined above). 10 See Schinasi (2004).
Why are stable financial markets important to the Australian economy?
A stable financial system is one in which financial intermediaries, markets and market infrastructure facilitate the smooth flow of funds between savers and investors. By doing so, they help promote growth in the economy and the welfare of Australians.
What is the difference between macroprudential and microprudential regulation?
Microprudential policy adjusts capital based on individual institutions’ risks, while macroprudential policy adjusts overall levels of capital based on the financial cycle and systemic relevance to guard against systemic risk buildup.
How does macroprudential policy work in Australia?
The Australian authorities view macroprudential policy as subsumed within the broader and more comprehensive financial stability policy framework. The Australian framework for financial stability policy incorporates several features that have lent it flexibility and helped ensure its effectiveness.
What is the framework for financial stability in Australia?
The Australian framework for financial stability policy incorporates several features that have lent it flexibility and helped ensure its effectiveness.
How does APRA do its macroprudential analysis?
APRA uses tools such as industry-wide stress tests, horizontal reviews and thematic analysis of emerging risks to inform its supervisory focus and actions. Assessments of systemic risks can motivate sector-wide prudential action, either of a supervisory or policy nature.
When was financial stability the focus of the RBA?
In 1998, the then Treasurer explicitly referred to financial stability being the regulatory focus for the RBA, in the Second Reading Speech in support of the APRA Act. [2]
