In order to enable an appreciation of this, let me provide a brief synopsis of the various initiatives under discussion from the macro and micro perspectives. The macro perspective 20. One clear lesson of the crisis is that regulation and supervision at the institution level is necessary, but not sufficient.
Even if each institution is healthy and safe on a stand-alone basis, systemic risk can build up because of procyclical, herd behaviour – what economists call the fallacy of composition. It is therefore necessary to supplement micro-prudential regulation with macro prudential oversight. 21.