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Prudential in sentence

117 examples of Prudential in a sentence

An exception may be prudential (safety-and-soundness) standards for banks, insurance companies, and some forms of pension plans, which should be tough, because national governments almost always will bear the losses in the event of failures of these types of financial institutions.
Of course, no such intervention will, or should, be approved in practice unless it is seen as satisfying several moral or prudential criteria, which, though not yet adopted by the UN as formal benchmarks, have been the subject of much international debate and acceptance over the last decade.
Opponents of prudential oversight of systemic risk take two different positions.
Governments brought commercial banks under prudential regulation in exchange for public provision of deposit insurance and lender-of-last-resort functions.
But the extent of intervention they condone differs, reflecting their different views concerning how dysfunctional the prevailing approach to supervision and prudential regulation is.
While prudential regulation and supervision can never be perfect, extending such oversight to hedge funds and other unregulated institutions can still moderate the downsides.
They are less convinced that recent financial innovation has created large gains (except for the finance industry itself), and they doubt that prudential regulation can ever be sufficiently effective.
There is a simple prudential principle at work here: because our ability to monitor and regulate behavior is necessarily imperfect, we need to rely on a broader set of interventions.
Economics teaches that countries should maintain open economic borders, sound prudential regulation and full-employment policies, not because these are good for other countries, but because they serve to enlarge the domestic economic pie.
But it does not help to solve major financial problems, and those that it does address (short-term, overnight financing) could be dealt with more directly, with a more focused tax, better rules governing those transactions, and improved prudential regulation.
The irony here – not lost on the major banks’ finance directors – is that as fast as banks add capital from rights issues and retained earnings to meet the demands of prudential regulators, the funds are drained away by conduct regulators.
The European Commission has argued that a fully-fledged banking union would need to rest on four pillars: a single deposit protection scheme covering all EU (or eurozone) banks; a common resolution authority and common resolution fund, at least for systemically important and cross-border banks; a single European supervisor for the same banks; and a uniform rule book for prudential supervision of all banks in Europe.
A sixth option – especially where a country has carried out partially sterilized intervention to prevent excessive currency appreciation – is to reduce the risk of credit and asset bubbles by imposing prudential supervision of the financial system.
Such a union should be understood as a centralized bank supervisor, resolution authority (RA), and deposit insurance fund (DIF), at least for systemically important and cross-border institutions, as well as a unified rule book for prudential supervision.
There are now only two options: integrate ahead of markets – that is, give the ECB supervisory powers for systemically important and cross-border institutions, unify prudential rules, and create an RA with money from the ESM – or permit the current disintegration process to continue and await the euro’s relatively quick demise.
A similar institutional design could be adopted for prudential policies.
A global system for prudential regulation and supervision; a revamped IMF managing a global reserve currency, coordinating global macroeconomic policy, and providing agile credit lines; and an international debt court – all of these must be on the agenda.
Indeed, the influence of the US investment-banking industry’s lobbying efforts on the relaxation of prudential standards in financial regulation is widely recognized as a factor leading to the current crisis.
It must also be safe, with a central bank maintaining economic stability, prudential regulators keeping fraud and speculation in check, macro-prudential authorities displaying adequate financial fire-fighting capabilities, and a legal system that is predictable, transparent, and fair.
When dealing with surges of potentially destabilizing capital inflows, capital controls are a no-no, but something called prudential regulation is quite okay.
Other emerging countries, like Peru, have tightened domestic prudential regulations with the same aim in mind.
But the paper also shows that domestic prudential policies – such as capping home-mortgage loans at a certain percentage of the property’s value, or increasing banks’ capital requirements during economic upswings – can be effective at restraining lending booms.
This suggests that capital controls and prudential policies can complement each other, contrary to what conventional wisdom often assumes.
As for financial supervision, stability would be guaranteed by ensuring that individual financial institutions adopt sound prudential rules that preserve capital cushions commensurate with their risk exposure.
This raised questions about prudential supervision, chiefly whether sufficient resources exist to check whether the institutions are financially sound.
Banks nowadays create products and IT platforms to serve their customers in all their countries of operation; so separate prudential assessments of units in these cross-border groups, be they subsidiaries or branches, is hardly rational.
Recent attempts to remedy this under the Capital Requirements Directive have been disappointing, even though it was plainly the best that could be achieved politically given EU countries’ differing views on prudential supervision.
Financial excesses become the rule rather than the exception, facilitated by financial innovation and the erosion of lending standards and prudential regulation.
The lesson of this crisis is that excessive swings need to be dampened with a set of prudential measures.
Improving the ability of financial markets to self-correct to sustainable values is the entire point of prudential regulation.
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