Prudential regulators have traditionally focused on financial metrics, such as whether institutions hold enough capital and liquidity to cope with an economic downturn, and whether they are managing financial risks appropriately. Prudential regulators also seek to make sure banks have robust internal controls so that the services they offer are reliably available. Like its peers around the world, in more recent times APRA has increased its focus on non-financial issues such as poor leadership, weaknesses in remuneration practices, or a lack of accountability when things go wrong.
Importantly, prudential regulation is designed to prevent problems emerging, rather than providing a means to take action after harm is caused. Each industry that APRA regulates — that is, banking, insurance and superannuation — has specific prudential standards, prudential guidelines and reporting standards that apply to them.
Conversely, banks located in countries with higher regulatory flexibility tended to have lower liquidity buffers. Notes: The charts show the scatter plots — at the country level — of the liquid assets ratio and the prudential indicator value regulatory flexibility in Chart 2. A and supervisory discretion in Chart 2. The liquid assets ratio in percentages, on the y-axis is computed as the ratio of liquid assets to total deposits and short-term borrowing.
The blue dots refer to the country-level averages over the period , so they give a snapshot of the pre-existing situation before the implementation of Basel II.
The red dots plot the country-level averages calculated over the period and refer to the period of the implementation of the CRD. When linking explicitly liquidity buffers with the prudential framework, the analysis suggests that lower liquidity buffers explained by a more flexible regulatory framework are indeed associated with a higher probability of having received some form of public support banks in weaker liquidity positions were less able to withstand the crisis shocks , which points to spillovers across regulatory instruments.
The European banking union was partly undertaken to address the concerns, arising from the crisis experience, that national differences in the implementation of the EU prudential framework might have fostered risk accumulation ahead of the financial crisis.
The results of the analysis reported in this article provide some support to this argument. Moreover, the analysis also suggests that these national differences had important implications for bank behaviour. Furthermore, the analysis on supervisory discretion and regulatory flexibility sheds some light on the incentives related to different designs of the prudential framework, i.
The single rulebook still contains a relevant number of national options and discretions. To deal with the level-playing field issues resulting from different national rules, the European Central Bank has conducted extensive work on harmonising national options and discretions within the euro area, first with the publication of a regulation and a guide regarding significant institutions March , and then with the publication of a guideline and a recommendation concerning less significant institutions April [ 7 ].
These initiatives can contribute to the stability of national banking systems, by realigning the regulatory incentives on the basis of a common prudential framework. Altunbas, Y. Barth, J. Beltratti, A. Laeven, L. Maddaloni, A. Ongena, S. Skip to main content. Home Prudential regulation. Related links Related links. In this section.
Who are we? What is the PRA? Which firms does the PRA regulate? Our Business Plan, goals and objectives Our competition objective Our statutory and enforcement powers Key regulatory communications. What do we do? How do we authorise firms? How do we supervise firms? Financial Services Compensation Scheme Resolution Ring-fencing regime Strengthening accountability System-wide stress testing Transforming data collection.
Sign up for latest updates. We are the Prudential Regulation Authority As part of the Bank of England, we are responsible for the prudential regulation and supervision of around 1, banks, building societies, credit unions, insurers and major investment firms. Our three objectives:. The transition to the Twin Peaks model of regulation is being implemented in phases. The second phase entails developing, harmonising and strengthening the legal frameworks for prudential and market conduct regulation and supervision.
As required by the FSR Act, the Prudential Committee of the PA adopted a regulatory strategy to provide general guidance to the PA in performing its regulatory and supervisory functions and achieving its objectives.
The PA has adopted a collaborative and consultative approach to regulation and engages with other regulators, industry bodies and stakeholders within and outside the financial sector. Prudential Authority Regulatory Strategy - Latest news and information. A stable financial system is one that efficiently manages the flow of funds through its financial intermediaries, markets and market infrastructures such that it promotes growth in its economic activities.
The financial system plays a critical role in supporting economic activity. Households and businesses need ways to save and borrow in order to fund consumption and investment; payment systems to facilitate local and international transactions; and insurance to manage their day-to-day risks. The public needs to be confident that banks, non-bank deposit takers and insurers can and will continue to provide these services, and that the payment and settlement systems will work as expected.
However, the financial system is exposed to risks, which come from a wide range of sources, both global and domestic.
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