Many people have suggested several things; however one recommendation with which most of the analysts would agree is to go beyond micro-based approach to macro-based approach. This means that the approach needs to be changed from an individual perspective to the overall market perspective. In addition to this, it has been criticized that the role of financial institutions and financial regulations were insufficient in predicting and identifying such a major change in the economic condition of the country, at the time when the economy was going into recession. There has been a growing concern that a macroprudential approached needs to be adopted in order to make the economy more stable and strong. Macroprudential policy is defined as a concept in the banking regulation which defines about the financial instability in an economy and how these instabilities can be prevented through public policy. Analysts have claimed that a purely microprudential perspective is not satisfactory enough to maintain the stability of the economic condition. ...
It has also been predicted that the impact of financial crisis would have been a lot less if macroprudential policy would have been appropriate and the gap between the macroeconomic policy and regulation of individual financial institutions would have been narrower. After the financial crisis, analysts have recommended that prudential regulatory framework also needs to be recreated so that it would be more focused on the financial system so that such crisis do not occur again and the economy is able to recover from its position. In addition to this, the other main objective would be to ensure that the financial institutions do not impose undesirable costs on the society just like the cost that the overall society had to bear because of the recent financial crisis (Bank of England, 2009). MACROPRUDENTIAL POLICY Macroprudential policy helps in identifying the loopholes that occur in the banking regulation because of which chances of financial instability occur in the country. Not only this, but macroprudential policy helps in how to reduce these instabilities in the economy and it talks about preventive measures through which such economic crisis do not occur again. Macroprudential policy tends to complement microprudential policy and macroprudential policy interacts with different types of public policy which influences the financial stability of the economy. After the recent crisis, analysts have demanded a clear division between the two terms; macroprudential policy and microprudential policy. However the main objective of the policies would remain the same i.e. to minimize the risk of the economy. Many people demanded to have new set of macroprudential policy tools in order to make the
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