Aligning macro- and microprudential supervision

Abstract

This chapter discusses how to align macro- and microprudential supervision. In essence, to be effective, macroprudential analysis needs to feed into supervision at the micro-level. By incorporating macro risks, microprudential supervision contributes to the stability of the system as a whole. Conversely, macroprudential analysis needs to assess information from microprudential supervision in order to capture risks in systemic institutions, common exposures and nascent risks stemming from financial innovations. The chapter depicts the rise in systemic risk in recent years, spells out the distinction between macroprudential and microprudential supervision, and discusses how these interact. From a macro perspective on the crisis, it then draws ten key lessons for microprudential supervision.