The Macroprudential Turn: From Institutional 'Safety and Soundness' to Systemic 'Financial Stability' in Financial Supervision

Abstract

Since the global financial dramas of 2008-09, authorities on financial regulation have come increasingly to counsel the inclusion of macroprudential policy instruments in the standard ‘toolkit’ of finance-regulatory measures employed by financial supervisors. The hallmark of this perspective is its focus not simply on the safety and soundness of individual financial institutions, as is characteristic of the traditional ‘microprudential’ perspective, but also on certain structural features of financial systems that can imperil such systems as wholes. Systemic ‘financial stability’ thus comes to supplement, though not to supplant, institutional ‘safety and soundness’ as a regulatory desideratum. The move from primarily micro- to combined micro- and macroprudential finance-regulatory regimes is surely to be welcomed, for reasons that this author and others have offered in earlier articles. The old ‘lean versus clean’ debate is resolved once again now in favor of leaning. The victory does, however, raise certain new legal challenges to which predominantly microprudential finance-regulatory regimes are not typically subject – challenges of which regulators and other financially-oriented lawyers will wish to stay mindful. This Article aims to respond to that wish by comprehensively cataloguing and provisionally addressing the mentioned challenges, in order that interested parties might thereby be able to find full treatment of the subject in one place.