These measures include strong capital and liquidity requirements for banks, especially the largest and most systemic institutions. In addition, our supervisory stress tests evaluate the ability of large banks to weather severe economic stress and the failure of their largest counterparty as well as examining the risk management practices of the firms.
Compared to more advanced economies emerging markets seem to be more prone to institutional and financial sector weaknesses. Consequently, they are less capable to manage these large capital flows. Capital flows often depend not only on domestic fundamentals and policy management, but also on external variables.