Macroprudential theories or "it's a small world after all"

On May 5^th Ben Bernanke addressed the Federal Reserve Bank of Chicago about implementing a “Macroprudential” approach to Supervision and Regulation.  Though the term macroprudential and associated policies have been around for decades, I feel that the term will now be infused in our lexicon.  Mr. Bernanke indicated that a central element of the Dodd Frank Reform bill is the requirement that the Federal Reserve as well as other financial regulatory agencies adopt a so-called macroprudential approach--that is, an approach that supplements traditional supervision and regulation of individual firms or markets with explicit consideration of threats to the stability of the financial system as a whole.  In other words, the “macro-prudential” approach to supervision of the financial industry will require that all US and Global regulatory agencies work in concert with each other to provide oversight and exchange information. 

Relative to traditional regulation and supervision, executing a macroprudential approach to oversight can involve heavier informational requirements and more-complex analytic framework.  So start getting prepared.

Moreover, broadly speaking, macroprudential regulators will be concerned with at least two types of risks. The first type encompasses aspects of the structure of the financial system--such as gaps in regulatory coverage or the evolution of shadow banking--that pose ongoing risks to financial stability. The second class of risks are those that vary over time with financial or economic circumstances, such as widespread buildups of leverage in good times that could ultimately unwind in destabilizing ways.

My view

We have heard the coordinate oversight approach from the SEC and now from the Fed.  With the world getting smaller and the financial industry becoming more complex, we will eventually need one set of rules that will govern the world financial markets.  It is time that financial industry firms realize this and look for ways stay ahead of the regulations rather than begrudgingly reacting to them.