The government is dismantling the Financial Services Authority and giving the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.
And a new Prudential Regulation Authority will monitor the performance of banks and other companies that manage significant risks on their balance sheets.
This was one of the first attempts by a central bank to try out the big new idea of the postcrisis world: macro-prudential regulation.
These efforts include steps to improve corporate governance and banking practices, overhaul the legal frameworks, and strengthen prudential regulation and supervision of financial institutions.
And second, by prudential regulation and supervision to avoid certain excesses.
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The large literature on macro prudential regulation stresses the importance of using information obtained in the supervisory process to check for emerging bubbles and other imbalances.
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The Prudential Regulation Authority (PRA), will take over responsibility for supervising the safety and soundness of individual financial firms and will also be run from within the Bank of England.
Mr King will now chair the interest rate setting Monetary Policy Committee (MPC), the new Prudential Regulation Authority (PRA) to monitor individual banks, and the new Financial Policy Committee (FPC).
And so suddenly everybody's talking about macro prudential regulation.
Under a shake-up of the U.K.'s regulatory system, the FSA will be disbanded in April and its responsibilities split between the Financial Conduct Authority and the Prudential Regulation Authority, supervising banks' financial health.
However, that goal should be achieved outside of housing finance, through appropriate stabilizing measures by the Federal Reserve and through better prudential regulation, and especially higher capital requirements for large systemic financial institutions.
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Lloyds has said that following discussions with the banking regulator, the Prudential Regulation Authority, it does not need to sell new shares to boost its capital resources and enhance its ability to absorb future losses.
The Prudential Regulation Authority, which will become the UK's regulator for deposit-taking institutions in April under the Bank of England, would have the power to ensure the ring-fenced bank to carry on with its business.
It will oversee two new financial watchdogs: the Prudential Regulation Authority (PRA), which will take over responsibility for supervising the safety and soundness of individual financial firms, and the Financial Conduct Authority (FCA), which will be tasked with protecting consumers and making sure that workers in the financial services sector comply with rules.
What will happen after tomorrow's announcement is that the FSA, to be superseded next Monday by the Prudential Regulation Authority - see my piece from last night's 10 O'Clock News (below) for more on this - will then go off and have yet more talks with each of the banks, to determine their individual capital requirements.
In a draft letter, to congressional leaders, the Treasury said that "all (over-the-counter) derivatives dealers and all other firms whose activities in those markets create large exposures to counterparties should be subject to a robust regime of prudential supervision and regulation".
There is no reason why the same should not be true for pensions, although the need for adequate prudential and saver-protection regulation will clearly remain.
But I also believe that market economies sometimes have market failures, and when these occur, there's a role for prudential -- not excessive -- regulation of the financial system.
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