The term microprudential regulation or microprudential supervision refers to firm-level oversight or financial regulation by regulators of financial institutions, "ensuring the balance sheets of individual institutions are robust to shocks".
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Aims
The motivation for micro-prudential regulation is rooted in consumer protection: ensuring solvency of financial institutions strengthens consumer confidence in the individual firms and the financial system as a whole. In addition, if a large number of financial firms fail at the same time, this can disrupt the overall financial system. Therefore, micro-prudential regulation also reduces systemic risk.
Standards
Micro-prudential regulation involves enforcing standards, e.g. the Basel III global regulatory standards for bank capital adequacy, leverage ratios and liquidity.