What is meant by "prudential regulation"?

Prudential regulation refers to the framework of rules and standards that financial institutions must adhere to in order to maintain a stable financial environment. Specifically, it emphasizes the importance of ensuring that firms have adequate financial resources and sound risk management practices. This type of regulation is primarily concerned with the safety and soundness of financial institutions, aiming to minimize the risk of financial instability that could impact consumers, investors, and the broader economy.

By requiring firms to hold sufficient capital reserves, liquidity, and risk management policies, prudential regulation seeks to prevent failures that could lead to significant repercussions in the financial system. This regulatory approach is foundational in maintaining public confidence in financial systems and institutions.

The other options focus on different aspects of regulation, such as consumer protection, market competition, or marketing strategies, which are not directly related to the prudential focus on financial stability and risk management.