There has been much talk about using macroprudential policy to manage systemic risk and reduce negative spillovers, but there is little agreement on how it could be operationalised. This column highlights the findings of a new book on the topic and offers a framework for operationalising macroprudential policy. Macroprudential measures, together with higher capital requirements, could be used to tame the build-up of leverage and credit booms in order to prevent financial crises.
Xavier Freixas, Luc Laeven, José-Luis Peydró, Wednesday, August 5, 2015 - 00:00
Jon Danielsson, Jean-Pierre Zigrand, Wednesday, August 5, 2015 - 00:00
Some financial authorities have proposed designating asset managers as systemically important financial institutions (SIFIs). This column argues that this would be premature and probably ill conceived. The motivation for such a step comes from an inappropriate application of macroprudential thought from banking, rather than the underlying externalities that might cause asset managers to contribute to systemic risk. Further, policy authorities are silent on the question of what SIFI designation should mean in practice, despite the inherent link between identification and remedy.
Niklas Gadatsch, Tobias Körner, Isabel Schnabel, Benjamin Weigert, Wednesday, June 3, 2015 - 00:00
There is a broad consensus that financial supervision ought to include a macroprudential perspective that focuses on the stability of the entire financial system. This column presents and critically evaluates the newly-created macroprudential framework in the Eurozone, with a particular focus on Germany. It argues that, while based on the right principles, the EU framework grants supervisors a high degree of discretion that entails the risk of limited commitment and excessive fine-tuning. Further, monetary policy should not ignore financial stability considerations and expect macroprudential policy to do the job alone.
Benjamin Nelson, Gabor Pinter, Konstantinos Theodoridis, Monday, March 16, 2015 - 00:00
Daniel C Hardy, Philipp Hochreiter, Thursday, February 26, 2015 - 00:00
Stephen Cecchetti, Wednesday, December 17, 2014 - 00:00
Stephen Cecchetti, Wednesday, December 17, 2014 - 00:00
Dirk Schoenmaker, Monday, December 15, 2014 - 00:00
Philippe Martin, Thomas Philippon, Tuesday, November 11, 2014 - 00:00
Charles A.E. Goodhart, Philipp Erfurth, Monday, November 3, 2014 - 00:00
Òscar Jordà, Alan Taylor, Moritz Schularick, Sunday, October 12, 2014 - 00:00
Jonathan Bridges, David Gregory, Mette Nielsen, Silvia Pezzini, Amar Radia, Marco Spaltro, Tuesday, September 2, 2014 - 00:00
Anil K Kashyap , Dimitri Tsomocos, Alexandros Vardoulakis, Friday, July 18, 2014 - 00:00
Do the extant workhorse models used in policy analysis support macroprudential and macrofinancial policies? This column argues that this is not the case and describes a new macroprudential model that stresses the special role played by banks. The model also accounts for two, often neglected, key principles of the financial systems. Some of the findings of the model could carry over to other, more general settings that satisfy these two principles.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, Tuesday, July 8, 2014 - 00:00
How should UK policy-makers respond to potential dangers to the economy from the housing market? As this column reports, a majority of respondents to the fourth monthly survey of the Centre for Macroeconomics (CFM) think that house price dynamics do pose a risk to the UK’s recovery; and that macroprudential tools rather than traditional interest rate policy should be deployed to deal with this risk.
Jon Danielsson, Kevin James, Marcela Valenzuela, Ilknur Zer, Sunday, June 8, 2014 - 00:00
Risk forecasting is central to financial regulations, risk management, and macroprudential policy. This column raises concerns about the reliance on risk forecasting, since risk forecast models have high levels of model risk – especially when the models are needed the most, during crises. Policymakers should be wary of relying solely on such models. Formal model-risk analysis should be a part of the regulatory design process.
Barry Eichengreen, Andrew K Rose, Thursday, June 5, 2014 - 00:00
Since the global financial crisis of 2008–2009, opposition to the use of capital controls has weakened, and some economists have advocated their use as a macroprudential policy instrument. This column shows that capital controls have rarely been used in this way in the past. Rather than moving with short-term macroeconomic variables, capital controls have tended to vary with financial, political, and institutional development. This may be because governments have other macroeconomic policy instruments at their disposal, or because suddenly imposing capital controls would send a bad signal.
Joseph Noss, Priscilla Toffano, Sunday, April 6, 2014 - 00:00
The impact of tighter regulatory capital requirements during an economic upswing is a key question in macroprudential policy. This column discusses research suggesting that an increase of 15 basis points in aggregate capital ratios of banks operating in the UK is associated with a median reduction of around 1.4% in the level of lending after 16 quarters. The impact on quarterly GDP growth is statistically insignificant, a result that is consistent with firms substituting away from bank credit and towards that supplied via bond markets.
Thomas Huertas, María J Nieto, Tuesday, March 18, 2014 - 00:00
The European Resolution Fund is intended to reach €55 billion – much less than the amount of public assistance required by individual institutions during the recent financial crisis. This column argues that the Resolution Fund can nevertheless be large enough if it forms part of a broader architecture resting on four pillars: prudential regulation and supervision, ‘no forbearance’, adequate ‘reserve capital’, and provision of liquidity to the bank-in-resolution. By capping the Resolution Fund, policymakers have reinforced the need to ensure that investors, not taxpayers, bear the cost of bank failures.
Stijn Claessens, Fabian Valencia, Thursday, March 14, 2013 - 00:00
Inflation targeting once seemed sufficient, but the Global Crisis showed that maintaining financial stability and price stability requires more than the monetary-policy tool. We are witnessing the rise of macroprudential policy. This column discusses how monetary and macroprudential policies interact and what it means for policy and institutional design. Regardless of whether both policies are assigned to the same authority or to two authorities; separate decision-making, accountability and communication structures are required.
Dirk Schoenmaker, Sunday, December 9, 2012 - 00:00
Eurozone banking union discussions are full of questions about the scope of Eurozone microprudential bank supervision. Yet, this column argues that there is surprisingly little debate on the macroprudential supervision that is necessary to safeguard the wider European financial system. After all it is macro developments, such as fast rising housing prices, that lie at the heart of the ongoing crisis in Europe. To safeguard the financial system, Eurozone macroprudential tools should be under the ECB, separate from microprudential functions, with input from national central banks when differentiation is necessary.