Dynamic Safety Governance for Financial Stability: A Regulatory Framework for Flow-Capacity Monitoring and Contingent Readiness under Model Ambiguity

Abstract

Purpose — This paper develops a regulatory framework for connecting system-wide liquidity surveillance to preparedness and intervention when financial flows, stress-period capacity and behavioral responses are uncertain. Design/methodology/approach — The paper integrates established work on macroprudential externalities, liquidity amplification, financial networks, coordination-sensitive crises and model uncertainty with recent system-wide regulatory practice. It develops a conceptual supervisory architecture and uses recent financial episodes as mechanism illustrations rather than predictive validation. Findings — Acute systemic pressure is better characterized by time-constrained flows converging on shared, state-dependent capacities than by aggregate volume alone. Model uncertainty need not imply passivity: reusable capabilities can be prepared before stress and deployed only when observable conditions materialize. Originality — The framework links cross-mechanism flow-capacity surveillance, decision-making under partial identification and bounded contingent readiness within one supervisory process, and adds prospective immutable decision records to distinguish forward performance from retrospective reconstruction. Research limitations/implications — The framework has not yet been prospectively validated. Its incremental value should be tested through bounded, sequential pilots with preregistered failure criteria. Practical implications — Regulators can map common capacity dependencies, classify preparedness by demonstrated operational readiness, and pre-specify activation and exit conditions.