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Federal Reserve Bank of New York
Staff Reports
Macroprudential supervision of financial institutions: lessons from the SCAP
Beverly Hirtle
Til Schuermann
Kevin J. Stiroh
Abstract

A fundamental conclusion drawn from the recent financial crisis is that the supervision and regulation of financial firms in isolation--a purely microprudential perspective--are not sufficient to maintain financial stability. Rather, a macroprudential perspective, which evaluates and responds to the financial system as a whole, seems necessary, and the ongoing discussions of regulatory reform in the United States underscore this view. The recently concluded Supervisory Capital Assessment Program (SCAP), better known as the bank "stress test," is one example of how the macro- and microprudential perspectives can be joined to create a stronger supervisory framework that addresses a wider range of supervisory objectives. This paper reviews the key features of the SCAP and discusses how they can be leveraged to improve bank supervision in the future.


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Beverly Hirtle & Til Schuermann & Kevin J. Stiroh, Macroprudential supervision of financial institutions: lessons from the SCAP, Federal Reserve Bank of New York, Staff Reports 409, 2009.
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Keywords: Financial market regulatory reform ; Bank supervision ; Banking law
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