Last week on the 23rd April, the Bank for International Settlements (BIS) released a new Working Paper: “Post-crisis international financial regulatory reforms: a primer”. The paper was written before the COVID-19 pandemic but highlights the financial system’s behavior during the current climate and the key regulatory developments since the post-Global Financial Crisis (GFC) reforms.
The paper takes an analytical approach, primarily focusing on the shock-absorbing abilities of banks and CCPs. Furthermore, it demonstrates a comprehensive analysis of the post-crisis reforms across the regulatory landscape for these financial entities. Questions arise in relation to how regulations have bolstered the abilities of these institutions to cope with large shocks in the financial markets and absorb them effectively.
The key findings are noted: “First, the post-GFC reforms have greatly strengthened the financial system. They have improved the quantity, quality and timeliness of the loss-absorbing resources supporting financial stability; they have increased the robustness of standards to mismeasurement and misreporting of risks; and they have addressed systemic (“macroprudential”) concerns head-on. Second, the system’s shock-absorbing capacity depends strongly on how individual standards interact, in some cases reinforcing each other, in others giving rise to tensions. Third, there still are “barren patches”, or areas that deserve authorities’ further attention. This reinforces the need for a conservative regulatory approach.”
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