A lesson to be drawn from the global financial crisis is that regulatory authorities placed too much emphasis on microprudential surveillance, and as a result, they ignored or indeed turned a blind eye to the adverse effects of the accumulation of aggregate risk.
It was only after the recent crisis that the authorities came to realize that network systemic risks expand as interconnectedness among banks intensifies. The addition in Basel III of macroprudential overlays – such as countercyclical capital buffers, forward-looking provisioning, and systemic surcharges for SIFIs – is based on the repentance of the previous microprudential surveillance framework.