Large and Complex Financial Institutions: Challenges and Policy Responses: Lessons from Sweden
IMF Policy Discussion Papers, March 1, 2003
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- Large and Complex Financial Institutions: Challenges and Policy Responses: Lessons from Sweden
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Bibliographic details
- Authors: R. B. Johnston, Balázs Horváth, Luca Errico, Jingqing Chai
- Published: March 1, 2003
- Series: IMF Policy Discussion Papers
- DOI: https://doi.org/10.5089/9781451975031.003
Summary
- Examines regulatory and supervisory implications from the dominance of large and complex financial institutions, drawing on the Financial Sector Assessment Program (FSAP) mission work on Sweden.
- Highlights the importance of:
- consolidated supervision;
- greater emphasis on effective management and corporate governance structures;
- measures strengthening the disciplinary role of the private sector.
- Calls for developing credible liquidity and crisis management arrangements with attention to the cross-product and cross-border nature of large and complex financial institution (LCFI) operations.
- Argues that strengthened supervisory and regulatory responses will enable financial markets to better assess residual risks and develop more effective risk-mitigating measures.
Key findings and analysis
- Consolidated supervision is crucial for effective oversight of LCFIs given their cross-product and cross-border operations.
- Effective management and corporate governance structures at LCFIs reduce supervisory and systemic vulnerabilities.
- Strengthening private-sector discipline can mitigate moral hazard associated with systemic LCFIs.
- Credible liquidity and crisis management arrangements should be developed to address LCFI-specific contagion and operational channels.
- Enhanced supervisory and regulatory measures improve market assessment of residual risks and promote private-sector risk mitigation.
Policy recommendations
- Implement and maintain consolidated supervision frameworks tailored to LCFI structures and activities.
- Focus supervisory efforts on management quality and corporate governance standards within LCFIs.
- Adopt measures to strengthen market discipline and reduce moral hazard, including transparency and disclosure improvements.
- Design and operationalize credible liquidity and crisis management arrangements that account for cross-product and cross-border linkages.
- Strengthen regulatory and supervisory responses to enable markets to better price and mitigate residual risks.
Subject areas and keywords
- Subject: Banking; Economic sectors; Financial crises; Financial regulation and supervision; Financial sector; Financial sector policy and analysis; Moral hazard; Stress testing
- Keywords: Baltics; business name; financial institution; financial institution solvency; Financial sector; Large and complex financial institutions; LCFI operations; LCFI's banking; LCFIs active; market confidence; market discipline; moral hazard; PDP; policy lessons; solvency support; Stress testing; Swedish LCFIs; systemic importance