That said, a key lesson of the crisis is that a purely microprudential approach, focused on the conditions of individual firms or markets, may fail to detect important systemic or crosscutting risks. For example, a traditional microprudential examination might find that an individual financial institution is relying heavily on short-term wholesale funding, which may or may not induce a supervisory response.
The implications of that finding for the stability of the broader system, however, cannot be determined without knowing what is happening outside that particular firm. Are other, similar financial firms also highly reliant on short-term funding? If so, are the sources of short-term funding heavily concentrated?