REGULATING THE

FINANSIAL SECTOR
Members Of The Group :
1. Elisabeth Bunga Tukan
2. Fransiska Liska Bhanda Kiuk
3. Karliana Mila Ate
4. Maria Nathalia Y W Kadu
5. Ridwan Puay
6. Verdiana Ese Tupen
 THEORY
DEFINITION OF PUBLIC REGULATION
Regulation comes from English, namely regulation or regulations. In
the Indonesian dictionary (Reality publishers, 2008), the word "rule"
implies a rule that made to regulate, instructions used to organize
something with rules, and provisions that must be carried out and
obeyed. So, public regulations are provisions that must be
implemented and complied with in the process of managing public
organizations, both in central government organizations, regional
governments, political parties, foundations, NGOs, religious
organizations/places of worship, and other social organizations.
 Basic Principles of Financial
Regulation
A. Higher Capital Requirements Don't
f orget

The U.S. Treasury has enunciated a set of core principles for capital and ...
liquidity requirements for financial institutions, including the following
three principles:

a) Capital requirements should be designed to protect the stability of the

financial system, not just the solvency of individual banking firms.

b) Capital requirements for all banks should be increased from present

levels and should be even higher for financial firms that pose a threat
to overall financial stability.

c) Banking firms should be subject to a simple, non-risk-based leverage

constraint and also to a conservative, explicit liquidity standard.
B. Countercyclical Provisioning and Acyclical
Accounting Standards
Brunnermeier and others (2009) contend that countercyclical capital
charges are essential and

avoid inefficiencies related to higher capital requirements. They

argue that regulators should

adjust capital adequacy requirements over the cycle by two

multiples: the first related to above

average growth of credit expansion and leverage, the second related

to the mismatch in the

maturity of assets and liabilities.

 C. Liquidity Risk and Leverage

Many of the committee reports cited earlier suggest that regulators establish
parameters for financial firms to manage liquidity risk and limit
leverage, especially as the latter can heighten counterparty risk in the financial
system.
Such policies would involve monitoring the liquidity risks of banks as well as other
financial institutions that pose systemic risks because of their interconnectedness
with
other parts of the financial system or their size.
 D. Increasing Transparency

This is a broad concept that includes substantive issues

such as bringing more derivative products onto
exchanges where they can be traded in a more
transparent setting and thereby can be monitored and
regulated more effectively.
 E. Macroprudential
Approach to Regulation

In complex financial systems, where there is a high level of

interconnectedness among financial institutions, institution-specific risk
can quickly get transformed into aggregate-level risk. The solution is in
principle to monitor institution-specific as well as aggregate risk.
F. Coordination among Regulators

Many financial institutions are now complex and operate under

multiple jurisdictions, including in some areas where regulatory oversight
might be minimal. There is an increasing impetus in different economies
to put in place an institutional setup to coordinate the work of different
regulatory agencies and to provide oversight of the agencies themselves.
 G. Resolution Mechanisms for Failing
Financial Institutions
Massive government bailouts of distressed financial institutions were
undertaken in many advanced economies during the throes of the
crisis. .The system has become infected with enormous moral hazard as the
market will now regard every major financial institution as having implicit
gover .One solution to this problem is to create a resolution mechanism
whereby even a large financial institution can be allowed to fail but in an
orderly manner that does not involve systemic spillovers of that institution’s
distress.nment backing.
 Interaction among prudential and other
financial sector and macroeconomic policies
Financial sector policies can be broadly classified into the following categories:
a) Prudential policies to ensure safety and soundness of the financial system (financial
stability)
b) Regulatory and supervisory policies
c) Depositor and consumer protection policies
d) Financial inclusion policies
e) Other policies for ensuring an adequate supply of credit to economically important
sectors such as SMEs, infrastructure etc
f) Market structure and competition
A. Objectives of prudential policies
Don't
f orget

...
Prudential policies comprise macroprudential and microprudential
policies. The objective of
macroprudential policies is to detect and prevent the build-up of
vulnerabilities in the financial system
as a whole which may culminate in systemic risk. Microprudential
policies are focused on ensuring the
safety and soundness of individual financial institutions. Together,
macro- and microprudential policies
aim to ensure the stability of the financial system, aiding it in
efficiently allocating resources to the real
economy
B. Interaction between prudential policies and
other financial sector policies

While prudential policies can, by delivering financial stability,

facilitate growth and other objectives of financial sector policies,
other policies will have to be implemented to balance numerous
considerations such as growth imperatives, the flow of credit to
disadvantaged and preferred sectors, consumer protection, financial
inclusion and equity etc.
 DISCUSION
Financial sector regulation in the world

A.Regulation in developed countries

Another important feature of financial regulation in the developed countries was an

almost exclusive focus on institution-specific regulation and almost complete
absence of macroprudential regulation despite the increase in the size and
complexity of activities of large banks, banks’ exposure to lightly regulated or
unregulated activities, and growing leverage and interconnectedness of banks and
other financial entities.
B. Financial sector regulation in the post-
crisis world
Towards the end of 2008, it became clear that weaknesses in financial sector
regulation and supervision had contributed to the crisis significantly. The efforts to
reform financial sector regulation began under the aegis of G20, and the Financial
Stability Board and the Basel Committee on Banking Supervision (BCBS)
embarked on an ambitious agenda for regulatory reforms. During the next two
years, a number of initiatives were taken by the BCBS with the objective of
improving the banking sector’s ability to absorb shocks arising from financial and
economic stress and to reduce the risk of spillover from the financial sector to the
real economy.
 CASE

A. Causes Of The Economic Crisis

1. Excessive national debt

2. high inflation rate

3. stalled economic growth

B. Indonesian Economic Crisis
Indonesia itself experienced an economic crisis in 1998. At that time, the
Indonesian economy had fallen deeply, contracting 17.9 percent in the third
quarter. The impact of this event was enormous. hundreds of companies ranging
from small scale to conglomerates collapsed in the 1998 crisis. About 70% more
companies listed on the capital market suddenly went bankrupt. Then,
unemployment soared to levels not seen since the late 1960s, namely about 20
million people or 20% more of the labor force. As a result, the poverty rate has also
increased. It is recorded that the poverty rate in 1998 reached around 50% of the
total population. Seeing this impact, currently the government is trying its best so
that the 1998 crisis will not happen again.
C. . How To Deal With The Economic Crisis

a) prepare finances
b) reduce expenses
c) reduce debt
d) asset diversification
e) have extra income
f) check insurance coverage
g) prepare food stocks
h) stay close to family and loved ones
THANK YOU