A Study on Macro-prudential Supervision in Taiwan
Date Issued
2015
Date
2015
Author(s)
Hsieh, Cheng-Hon
Abstract
The aim of macro prudential supervision stresses on financial stabilities and decrease of systemic risks, including the “procyclical risk” and the “connection risk”. To minimize the fluctuation of financial system over time, the authority could adopt the mechanism of marco prudential supervision, “time dimension supervision” to address the “procyclical risk”. In addition, in need of early warning indicators and preventive measures to avoid the impact of individual financial institutions on the financial stability, the authority could adopt the mechanism of marco prudential supervision, “cross-dimension supervision” to response the ""connection risk "". Micro prudential supervision emphasizes on individual financial markets and financial institutions, ensuring each financial institution has adequate capital and sufficient liquidity to protect consumers. Stabilizing the financial system requires sound development of each financial institution. Evidence from the financial crisis shows that traditional micro prudential supervision insufficiently stabilizes the global finance, and relies on macro prudential supervision to timely identify the risks and vulnerabilities of financial system, reducing the possibilities of financial disorders. After the financial crisis, Basel Committee on Banking Supervision (BCBS) has proposed measures of macro prudential supervision on the Basel III to reduce the systemic risk, including the “countercyclical capital buffer”, the “capital conservation buffer”, and the “leverage ratio” to solve the over expansion of credit. Furthermore, the Taiwan Financial Supervisory Commission (FSC) has revised the “Regulations Governing the Capital Adequacy and Capital Category of Banks” based on Basel Ⅲ, including banks’ calculation of the leverage ratio and definition of the “Capital Adequacy Ratio” and ”Tier 1 Capital Ratio”. Moreover, excessive concentration of banks’ credit and new mortgages concentrated in the greater Taipei area might have disadvantaged of banks’ credit risk control. In October 2009, the Central Bank of the Republic of China urged banks to prudently manage the real estate lending. Since June 2010, the Central Bank has set up macro prudential measures on real estate loans to strengthen banks’ risk control of real estate credit
Subjects
macro prudential supervision
financial crisis
procyclical risk
connection risk
Basel accord
Type
thesis