What is microprudential regulation?

Financial regulation at a firm level to make sure individual financial institutions are resistant to shock.

Where have you heard about microprudential regulation?

The benefits of microprudential versus macroprudential regulation have been hotly debated following the financial crisis of 2007-2008.

What you need to know about microprudential regulation.

Microprudential regulation focuses on the stability of individual banking institutions and protection of their customers rather than the economy as a whole. It considers the health of individual institutions to be critical for financial stability and focuses on the resilience of these institutions and their response to external risks.

The microprudential regulatory approach has been criticised for neglecting the systemic implications of behaviour which can result in financial crises. For example, the impact on the market of everyone buying or selling particular assets at the same time. Many economic experts believe a balance of microprudential and macroprudential regulation is required for a healthy financial system.

Find out more about microprudential regulation.

Macroprudential regulation takes an alternative viewpoint that focuses on the financial system as a whole. Find out more about the differences in our guide to macroprudential regulation.