Description

In a post-crisis scenario, the global economy has entered into an episode of gradual recovery characterized, in part, by different growth velocities and capital flows to emerging market economies. This global environment has opened a debate relative to macroprudential regulation, financial stability and capital flows. In this paper I highlight the importance of this latest aspect, particularly in emerging economies where prudent macroeconomic and financial management have been crucial factors in promoting fiscal solvency and external equilibrium. Related to the banking system and financial stability, prudential regulation plays a central role. Gross capital flows are not exempt from funding and credit risks. Hence, the soundness of the banking system can be positively affected by a proper regulation focused on overall liquidity requirements and on avoiding currency mismatches. Therefore, authorities should focus financial regulation toward into this direction. In addition, the recent agreements of the Basel Committee on Banking Regulation are positive steps on strengthening the soundness of the banking system. However, there are still some risks to face, such as those imposed by institutions of systemic importance.