Question

A. Outline the principle features of micro prudential regulation using examples from Basel 1 and 2.

Answer 1

Micro prudential regulation is the type of provision of evaluating financial position through the economic analysis. It uses the macro economic indicators like inflation, GDP, exchange rate to determine the feasibility of financial system effecting the development of the nation. Lets us discuss the principle features of micro prudential with reference to the examples of Base 1 and 2.

As per Basel Committee on banking supervision rules which test the liquidity risk and the level of the capital adequacy, we can frame the principal features of micro prudential regulation. Firstly, it provides the frequent research information on financial performance periodically in order to alert the risk factor of financial instruments. Secondly, Prominent Financial Institutions like European System Risk Board (ESRB), International Monetary Fund and Bank of International Settlements prepares the link of communication regarding disseminating the current financial position by collecting the status of assets and liabilities of the public sector banks like Bank of England, Barclays Bank, Bank of Finland and other European banks, etc. Finally, it recommends the guidelines for the banks to relocate the market structure through pooling the safe funds of investment through global customers.