Borio, Claudio, 2009, “Implementing the Macroprudential Approach to Financial Regulation and Supervision,” Banque de France, Financial Stability Review 13, The Future of Financial Regulation, September (Paris: Banque de France).
Crowe, Christopher W., and others, 2011, “Policies for Macrofinancial Stability: Options to Deal with Real Estate Booms,” Staff Discussion Note No. 11/02 (Washington: International Monetary Fund).
International Monetary Fund, 2011a, European Financial Stability Framework—Preliminary Findings and Recommendations, report prepared by staff of the Monetary and Capital Markets, European and Legal Departments (Washington: International Monetary Fund).
International Monetary Fund, 2011b, Macroprudential Policy: an Organizing Framework, IMF Policy Paper, (Washington: International Monetary Fund).
Morris, Stephen and Hyun Song Shin, 2008, “Financial Regulation in a System Context,” Brookings Papers on Economic Activity, Fall (Washington: The Brookings Institution).
Nier, Erlend W., 2009, “Financial Stability Frameworks and the Role of Central Banks—Lessons from the Crisis,” IMF Working Paper No. 09/70 (Washington: International Monetary Fund).
Tucker, Paul, 2011, “Macroprudential Policy: Building Financial Stability Institutions,” Speech given at the 20th Annual Hyman Minsky Conference, New York, April, 14, 2011.
Wong, Eric, and others, 2011, “Loan-to-Value Ratio as a Macroprudential Tool—Hong Kong’s Experience and Cross-Country Evidence,” Hong Kong Monetary Authority Working Paper 01/2011. (Hong Kong: Hong Kong Monetary Authority).
Prepared by Erlend Nier and Thierry Tressel
Regulation (EU) No. 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board.
European Financial Stability Framework Exercise, Preliminary Findings and Recommendations, May 26, 2011, prepared by staff of the Monetary and Capital Markets, European and Legal Departments of the IMF.
The regulation stipulates that requests from the ESRB for detailed data addressed to the ESAs will have to be ad hoc and motivated, and it does not provide a dispute settlement mechanism.
Decisions within the General Board of the ESRB are generally taken by simple majority, but a majority of two thirds will be needed to adopt recommendations or to make a warning public.
The public policy interest arises because the financial sector provides key services to the real economy.
Another difficulty with macroprudential policy is that the decision by the policy-maker to signal growing systemic risk may trigger market speculation and self-fulfilling expectations of a crisis.
Countries’ crisis experience may also condition their approach to macroprudential policies. For example, countries that experienced a deep financial crisis—such as the U.K.—are more actively developing their macroprudential toolkit than other countries that did not.
Both levies on wholesale funding and quantitative liquidity ratios act as “automatic stabilizers” mitigating the cross-sectional dimension of systemic risk and potentially reducing the need to readjust these measures in a countercyclical fashion.
The impact on credit supply will depend on the speed at which the buffer is built-up. A fast build-up will presumably be more effective in constraining credit supply, in particular if banks have to resort to costly issuance of equity.
Some of these measures would generalize microprudential exposures limits that are not time varying.
Optimal risk weights may differ from a microprudential perspective than from a macroprudential one. For example, collateralized short-term assets (such as reverse repo transactions) may appear safe from a microprudential perspective, and therefore attract low capital requirements. But they could be systemically important as decisions not to roll-over the transaction may trigger fire sales of assets by the counterparty of the transaction, which may amplify financial crisis (Morris and Shin, 2008).
The experience of Central and Eastern European countries proved that measures taken by host countries can be evaded through cross-border lending, lending through branches or non-bank financial intermediaries that are not within the regulatory perimeter of the host country.
For example, an asset class would be defined as sovereign bonds of country A, or mortgages on properties of country B.
More generally, countries may occasionally have an interest in obtaining a validation of their national macroprudential policies by the ESRB, for example to overcome opposition on the part of the financial industry.