Zhong Wei,deputy editor-in-chief of China Forex Magazine,speaks to Xu Gao,chief economist at Everbright Securities,and Zheng Liansheng,associate researcher from the Financial Institution of the Chinese Academy of Social Sciences.

Zhong Wei: Prudential financial regulations consist of both macro regulations focusing on preventing systemic risks and stabilizing the market,and micro regulations aiming to control capital adequacy ratios and overall risks. People tend to think that it is the central bank's duty to take macro prudential measures,while the financial regulatory agencies should be responsible for micro regulatory matters. However,financial regulations in major economies have changed a lot since the subprime crisis and the European debt crisis. Does this suggest there is friction between traditional macro and micro prudential regulations?

Xu Gao: One major cause of the subprime crisis was the expanding gap between macro and micro prudential regulations. Macro regulators can hardly detect changes in micro areas while micro regulators are often incapable of spotting macro risks. This reduces regulatory efficiency.

In recent years,the transfer of risk within the financial system is much faster than before as the system has become more complex thanks to innovation,market liberalization and universal banking. Therefore,theorem-based micro prudential regulations by a single financial institution face considerable challenges. For example,a certain financial institution might be holding multiple positions exposed to risks whose sources,under normal conditions,have little connection with each other. Even if a problem arises,a weak capital buffer could be enough to maintain stability. But under abnormal conditions,the same risks could affect other parts of the financial system in a short period of time,and micro prudential regulation alone might not be sufficient.