Book Chapter

Central Banking and Prudential Regulation: How the Wheel Turns

K Davis

The Oxford Handbook of the Economics of Central Banking | Oxford University Press | Published : 2019


The financial deregulation which occurred in major Western economies in the 1970s and 1980s freed banks from many pre-existing constraints, facilitating competition and greater risk-taking, and eventually leading to the emergence of prudential regulation and supervision as a specific, well-defined, area of regulatory activity. It was codified in the Basel Accord, which allowed banks considerable discretion in how they met broadly specified regulatory requirements (in the form of an aggregate risk weighted capital ratio) and was focused primarily on individual bank safety. The financial crisis of 2007-8 highlighted numerous weaknesses in the design and application of this approach. The previo..

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University of Melbourne Researchers