Peru’s fiscal framework embedded in the Fiscal Responsibility and Transparency Law (FRTL) has proved to be effective in reducing debt. The FRTL embodies some countercyclical elements in response to output or commodity price shocks. The combination of a provision for a moderate deficit on the downside, and a current expenditure cap on the upside, allows for some countercyclical policy. It still has pockets of procyclicality in the face of large shocks to output or commodity prices.


Peru’s fiscal framework embedded in the Fiscal Responsibility and Transparency Law (FRTL) has proved to be effective in reducing debt. The FRTL embodies some countercyclical elements in response to output or commodity price shocks. The combination of a provision for a moderate deficit on the downside, and a current expenditure cap on the upside, allows for some countercyclical policy. It still has pockets of procyclicality in the face of large shocks to output or commodity prices.

II. Institutional Framework for Macroprudential Policy1

A. Introduction

1. Embedding a macroprudential perspective into the policy framework is one of the lessons of the past global financial crisis. The 2008–09 global financial crisis highlighted the potential force of financial and real sector interactions. Macroeconomic policies and micro prudential frameworks have limitations in identifying and managing systemic risk, as they may fail to identify or appropriately handle financial excesses or adverse shocks that pose a risk to the financial system and the economy as a whole. The challenge is how to set in place a broader framework of macroprudential policy to preserve financial stability through assessing and managing systemic risk early on and its potential amplifying effects in the financial sector. Macroprudential policy can be useful as a complement for macroeconomic policies, especially to lean against the wind and to deal with volatile capital inflows.2

2. This chapter suggests ways to enhance coordination for the conduct of macroprudential policy in Peru, taking into account recent cross-country experiences. In order to improve systemic risk oversight and monitoring, advanced and emerging market economies have been adopting financial stability responsibilities, usually through more structured frameworks that outline mandates and roles. A formalized institutional framework would facilitate the conduct of macroprudential policy to manage more effectively systemic risks, and enhance the role of macroprudential policy in the policy toolkit.

B. Conduct of Macroprudential Policy: Current Institutional Framework

3. The Peruvian authorities have been very proactive in implementing macroprudential instruments to support financial and macroeconomic stability. The central bank (BCRP) has used of reserve requirements to manage liquidity in the financial system, both during the up-and downturn, and as a complement to the conduct of monetary policy. The Superintendency of Banks (SBS) has implemented, among others, measures to help smooth pro-cyclicality of financial services (through dynamic provisioning since end-2008) and internalize FX credit risks (additional provisions and capital, limits to the FX derivative position); and analyzed interconnectedness of financial institutions. In July 2010, the SBS issued regulations to impose additional capital requirements taking into account the economic cycle and concentration risks.

4. In the current legal framework, financial stability objectives are not explicitly allocated, but implicitly established in the objectives of the different economic authorities. Responsibility for financial stability is not explicitly assigned to any particular institution in the legal or regulatory frameworks, but it is clearly a collective goal for the financial authorities, including the BCRP, the SBS, and the Ministry of Economic and Finance (MEF). The BCRP has a clear involvement on financial stability issues through its mandate on ensuring monetary stability (see below), and more specifically the stability of the payment systems and as a lender of last resort. The SBS, the microprudential regulator, is responsible of the health of the financial institutions, and the stability of the financial sector as a whole. The role of the MEF in the conduct of macroprudential policy could be seen as more passive during normal times, while being clearly involved during crisis times, as decisions potentially have a fiscal cost.

5. BCRP and SBS have clear roles in preserving financial stability. Peru is clearly a case of “twin-peaks” in financial stability policy design. Both are constitutionally independent institutions with explicit mandates for preserving monetary stability and monitoring and supervising financial institutions, respectively.

  • BCRP. The central bank’s objective is to preserve monetary stability

    (Constitution, Article 84). Its functions are to regulate currency and credit in the financial system, manage international reserves, issue currency and coins, and inform the country about financial conditions. In addition, the Central Bank Board is in charge of establishing, regulating and modifying reserve requirements of financial institutions and of the payment system (Organic Law, Article 24.c and d respectively).

  • SBS. The Superintendence of Banks, Insurance and Private Pension Funds is in charge of the monitoring and supervising banking enterprises, insurance companies, and private pension funds, and other deposit-taking institutions as well as other companies that, because of interconnectedness or similar, are determined by law (Article 87 of the Constitution). In its supervisory responsibilities, the SBS has the objective of protecting the interests of the public in the sphere of the financial and insurance systems (Article 345 of the General Law of the Financial System and Private Pension Funds, and Organic Law for the Superintendence of Banking Sector and Insurance). Article 347 of the same law notes that the SBS is responsible of defending the interests of the public, safeguarding the economic and financial strength of the entities under its control.

6. On prudential grounds, both institutions oversight the financial sector, providing relevant information to the public. BCRP prepares a financial stability report on a bi-annual basis. The report discusses recent economic and financial developments, including a discussion of the challenges and risks ahead. The information is processed by the central bank’s financial sector unit, with limited participation of SBS’ staff. The SBS publishes monthly bulletins on balance sheets, income statements and risk assessments (credit, liquidity, operational) of banking institutions, pension funds, microfinance institutions, and insurance companies. Recent efforts by the stock market regulator (Superintendencia de Mercado de Valores, SMV) to gather corporate sector financial information are valuable.

7. An important shortcoming is that institutional coordination happens on a voluntary basis, with no specific institution with a clear mandate of analyzing systemic risk in the economy. At the technical level, coordination is currently done through a voluntary consultative committee established in 2008 in light of the global financial crisis, with the participation of the MEF, SBS, and BCRP staff. Created as a “crisis” committee, the committee has evolved to discuss other issues that require inter-institutional coordination, and is not necessarily circumscribed to financial stability. The meetings—on a bi-weekly basis—from this committee are then followed up by a meeting at the highest level to discuss policy coordination. This setup—dependent on willingness—hinders establishing an overall macro-prudential perspective in the policy framework; and decisions seem to be made based on a piecemeal approach that could be prone to delays in policy action. The committee has no mandate for financial stability and therefore lacks accountability.

8. The institutional setup could be enhanced to facilitate information sharing, analysis of systemic risks in the economy, and facilitate actions and accountability. Challenges lies ahead in designing macroprudential policy with a broad and systematic perspective to ensure an integrated evaluation of financial and economic vulnerabilities and sufficient oversight of systemic risks, and prevent delays in implementing new measures. It would also facilitate the integration of macroprudential policies in the policy toolkit, and enhance its complementary role with macroeconomic and microprudential policies. At a more operational level, information sharing could be enhanced to facilitate a better understanding of risks, and feedback loops between the financial and real sectors of the economy—with the aim of better managing plausible sources of systemic risk (that could rise outside the regulated financial system). In this context, efforts to enhance understanding of a detailed balance sheet of the economy with expanded sectoral analysis will be very helpful to assess interconnectedness, maturity mismatches and FX risks in the context of a still dollarized economy.3

C. Recent International Experience in Enhancing Institutional Frameworks

9. Since the 2008–09 global financial crisis, a number of countries have reviewed their institutional frameworks for financial stability to develop the macroprudential policy function. Keeping in mind that no universal recipe for the institutional setup exists, as country specific features need to be accounted for, the effort to enhance preventive action is strongly recommended. Given the incipient experience, the discussion about the institutional framework for macroprudential policy is mostly kept at the conceptual level and hinders any empirical assessment about effectiveness.

10. Efforts have been diverse in scope, from setting up dedicated committees to the elimination of the institutional boundaries between the central bank and the financial regulatory agencies. Nier et al. (IMF, 2011) summarizes recent trends, noting that institutional arrangements are shaped by country-specific circumstances, including the initial legal framework, the culture of coordination, and the need for accountability.4 The authors identify seven models according to the degree of institutional integration of central bank and supervisory agencies, the ownership of the macroprudential mandate; the role of the treasury; the separation of policy decisions and control over instruments; and the existence of a separate body coordinating across policies (see Table). Peru, together with Iceland and Switzerland, is reported as having the least institutional integration between the central bank and the financial regulatory functions; with multiple agencies sharing the macroprudential mandate and no active role for the treasury in macroprudential policy.

11. Central banks are always represented and often play a leading role. This reflects its experience and expertise in the assessment of macroeconomic and financial developments, available resources, as well as their role in ensuring the stability of the payment systems and being lenders of last resort. The spectrum of responsibilities varies depending on the institutional arrangements, going from the central bank having clear responsibilities for both macroprudential and microprudential policy (in Malaysia and the U.K.) to account for a large share of the votes in the committee (as in the European Systemic Risk Board (ESRB) in the European Union and the financial stability council in Mexico) (Box 1). In the US, the Fed is one of the 10 voting members of the FSOC but is in charge of the regulation of the systemically important banks and non-banks, as designated by the Financial Stability Oversight Council (FSOC).

12. Powers to communicate risk warnings and to recommend the adjustment of regulatory instruments are common in existing and emerging frameworks. Examples include the ability to issue non-binding recommendations to other authorities—as established for the ESRB, the financial policy committee (FPC) in the United Kingdom, and the FSOC in the United States. Recommendations are often subject to a “comply or explain” mechanism; sometimes strengthen with the ability to publish recommendations.

13. Powers to set and adjust instruments directly are most common where the macroprudential mandate and control over the instruments fall under the same authority. This is also the case when a central bank serves also as financial supervisor. Mechanisms to assign specific instruments to a new macroprudential body are also being developed in some cases but remain less common. For example, the new U.K. arrangement envisages the FPC being able to issue binding directions on specific macroprudential instruments.5 Where responsibility for the operation of the new macroprudential tools remains ill-defined, clear assignments are needed.

14. One principal design challenge is to establish accountability in the absence of an easily-measurable metric of success. The challenge is often compounded by the presence of multiple agencies in macroprudential policy–making that may differ in their primary objective and/or other views. Transparency and clear communication of policy decisions to the public are central elements of accountability. This is a strategy that could be expanded by including ex-ante statements of strategy, publication of records of meetings, and annual performance statements with an ex post assessment of policy effectiveness. In some cases, accountability is also done to Parliament. The EU establishes accountability for the ESRB to the European Parliament. In the U.K., the FPC’s Financial Stability Report will be laid before Parliament. The U.S. structure combines both strong reporting requirements to Congress and FSOC’s members’ obligation to individually attest that they believe that the proper actions are being taken to support financial stability.

From Coordination to a Fully Integrated Macroprudential Framework

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D. Moving Forward: Adapting the Institutional Framework in Peru

Some General Considerations

15. Governance structures for macroprudential policy should ensure an alignment of goals, instruments and know-how as well as operational autonomy from the government. Mandates should be realistic and avoid of false sense of precision, given difficulties to underpin systemic risk. Control over instruments should be commensurate with those of mandates, in order the enhance accountability. And given the especially long lag between the build-up of systemic risk and its materialization and the political economy of economic booms, the operational autonomy from the government is important. In this regard, clearly distinguishing the set up for macroprudential policy and that of crisis management can reduce the need for strong treasury involvement.

16. A formalized institutional setup would facilitate monitoring systemic risks more effectively, design better macroprudential policies in response to evolving financial vulnerabilities, and enhance analysis and coordination across institutions. As a starting point, enhancing information sharing would facilitate a better and common understanding of systemic macro-financial linkages. But also it will be important to adopt a more robust institutional mechanism (see below) to ensure a methodical approach to the analysis of systemic risks in the Peruvian economy; which should go beyond financial sector surveillance, and include potential financial activities our for the purview of regulations and other plausible sources of systemic risks.

17. Different configurations for the assignment of the macroprudential policy function among agencies would call for different governance arrangements. These will differ on the decision-making, autonomy and accountability arrangements. The range of the institutional framework for macroprudential policy could be then be seen as a shared responsibility across agencies; reside on a separate macroprudential agency with decentralized implementation; or as a sole responsibility of the central bank (with a separate microprudential regulator or not).

18. An institutional arrangement for macroprudential policymaking should strive to be conducive to effective mitigation of systemic risk. This involves having a clear objective; providing incentives and tools for authorities to act timely with that objective; supporting accountability and transparency of decisions; and ensuring effective coordination across policy areas that have a bearing on financial stability. The authorities will need to take into consideration that the analysis that underlies macroprudential policy shares characteristic with analysis used for microprudential policy (to understand the risks of systemically important institutions, for example), and for monetary and fiscal policy (to understand the implications of different financial structures). Some aspects of the analytical underpinning for macroprudential policy however are also specific to the task, such as issues of financial interconnectedness.

Enhancing Coordination

19. Given the current legal framework, a possible step would be to form a macroprudential or financial stability council. The council will institutionalize the current informal setting, going beyond individuals’ willingness to coordinate; and fits with the structure of having multiple bodies with a financial stability mandate (Box 2). A financial stability committee should go beyond its “key person” and voluntary nature, as well as extend its mandate across the political cycle, without jeopardizing the operational autonomy and independence of each agency. A key step will be to recognize financial stability coordination as its sole mandate. Given that decision making powers would be distributed among several agencies and have no control over instruments, the council will help coordinating several agencies—the central bank, the microprudential regulator, the securities market regulator, and the ministry of finance—in the design of macroprudential policy. Instruments control would remain.

20. The council would help the authorities raise awareness about potential risks, facilitate consensus building on the appropriate policy mix, and identify overlaps and gaps in monitoring vulnerabilities. The committee will be the venue for joint analysis and peer pressure. In addition, the committee would have the advantage to overview the potential for regulatory arbitrage, helping to identify the most appropriate tools. Europe and the United States have adopted a peer review and recommendation approach, so that the members of the council retain autonomy over their sphere of responsibility. In those instances, in order to make the council operational and form the basis for effective coordination while respecting the agencies’ autonomy, recommendations are hardened through a “comply-or-explain” obligation on the recipient of the recommendation; which could ultimately be made public.

21. While helpful at enhancing coordination, this proposed financial stability council presents some shortcomings. The council will not have an explicit mandate on financial stability issues nor control over instruments, which could results in a lack of accountability and delays in action as the council would not have powers to direct members’ actions. Despite difficulties defining specific objectives for financial stability, clarifying mandates and the articulation of a financial stability policy could help enhance financial surveillance. In search for an operational definition of financial stability, countries have considered defining it in terms of preconditions (New Zealand), in terms of outcomes—either the absence of the negative or smooth functioning (India), in terms of robustness to shocks (Norway); or in terms of a multidimensional objective (Deutsche Bundesbank, United Kingdom).6

Peru: Proposed Terms of Reference for a Financial Stability Council

Objective/Mandate. Surveillance of systemic risk, oversight for the stability of the financial system as a whole. The committee could clarify the responsibility of financial stability in the current regulatory framework and be in charge of the coordinated design of macro-prudential policies over the medium term. Earlier crises have shown that there is a need not to only “do more of the same,” but new questions and challenges are constantly emerging.

Responsibilities. (i) monitoring systemic risk in the economy, by analyzing the pro-cyclicality of financial services and interconnectedness in the economy as a whole; (ii) identify vulnerabilities that could pose systemic risks; (iii) monitor changes in the condition of sectoral balance sheets (including corporates and households), and developments in credit and asset markets, all of which have the potential to affect the level and distribution of systemic risk within the economy; (iv) design early warning systems for systemic risk, and incorporate economy-wide stress testing analysis; (vi) effectively coordinate macroprudential policy with macroeconomic and micro-prudential policies; and (vii) determine new data requirements for the analysis of systemic risks, while serving as a forum for information and data sharing among institutions.

Nature and Structure: Consultative (non-executive) committee—with representatives at the highest level (akin to the Monday Committee, members being the Finance Minister, BCRP President, SBS’s Superintendent, and the President of stock market regulator (SMV)). The committee is to be supported by a technical committee (akin the “Friday Committee,” done on a bi-weekly basis). Recommendations are to be considered and eventually implemented by the competent institutions.

22. Information and analytic expertise relevant to macroprudential policy should be readily available to the macroprudential structure. When information is already collected through reporting channels (regulatory returns, on-site examinations, or information from payment systems), the framework could govern the access rights for the macroprudential authority. Ideally, the arrangements for sharing information are often complex, since they involve confidential and market sensitive information, but clear memoranda of understandings should facilitate cooperation among the different agencies. The council should also have the power to request information directly from private firms when relevant information is not readily available to the macroprudential authority through other means (e.g. FX exposures of corporate).

23. While this chapter does not explore the legalities to follow; the stronger the legal framework that establishes the coordinating committee, the stronger its institutional setup. In the case of Mexico, an executive order established the Financial Stability Committee. The FSOC in the U.S.—established by Title I of the Dodd–Frank Wall Street Reform and Consumer Protection Act—was signed into law by President Barack Obama on July 21, 2010. In Australia, the Council of Financial Regulators is the coordinating body for the main financial regulatory agencies. Its setup is as an informal body and provides a flexible, low-cost approach to co-ordination among the main financial regulatory agencies. The Council is non-statutory and has no regulatory functions separate from those of its members.7

24. The central bank should play a prominent role in the financial stability council because of its role on price stability and as a lender of last resort. Financial stability can affect the macroeconomic environment, with consequences for economic activity, price stability and the monetary policy transmission mechanism. Central banks are the ultimate source of liquidity for the economy, and an appropriate liquidity provision is also crucial for financial stability. The performance of the monetary policy functions provide the central bank with a macroeconomic focus and an understanding of financial market functioning and infrastructures that are required for macroprudential policy. Placing the monitoring and management of systemic risks at the central bank will benefit the analysis from important synergies, given the central banks’ comparative advantage in understanding feedback loops between the financial sector and the real economy. Safeguards however need to be in place to ensure the autonomy of the central bank in the conduct of monetary policy.

25. The participation of the MEF in the financial stability council needs to be safeguarded to avoid pressures from the political cycle. MEF’s involvement in the council reflects the role of the ministry in crisis resolution, given its responsibility on the use of public funds—so they need to have a role in the preamble of designing prudential policy. Finance ministries are often involved in setting objectives and priorities for macroprudential policy, and have an important role if changes in legislation are expected to be needed to mitigate systemic risk, for instance with respect to expanding the perimeter of regulation. However, mechanisms to isolate the macroprudential policy framework from pressures linked to the political cycle are important; especially because of the asymmetry between the visibility and time profile of costs and benefits of macroprudential policy. The costs of macroprudential measures (restrictions on certain activities) are felt immediately while benefits (lower incidence of financial stress) accrue over the longer-term and are hard to measure.

26. The SBS brings the expertise of the microprudential regulator, with a clear advantage about instruments’ design and interconnectedness—the cross-sectional dimension of systemic risks. While analysis and decision-making can be centralized in a council, implementation may not. Separate macroprudential policy instruments do not exist in significant scale or reach; and implementation must use instruments primarily assigned to other policy objectives. In this regard, the settings for the relevant microprudential instruments can be supplemented by an additional macroprudential overlay; and the SBS has control over numerous instruments. For example, the SBS has worked on interconnectedness and recent measures requesting additional capital requirements take into account this element (via concentration risks and size).

27. SMV’s involvement is more related to structural aspects of macroprudential policy. Many of the tools deployed by securities market regulators (product disclosure, settlement arrangements, and market access rights, for example) are likely to be relevant to macro financial stability policy objectives. Further, securities market often span the regulatory perimeter, while the corporate sector can also become a source of systemic risk, as Brazil and Mexico experienced in the wake of the 2008–09 financial crisis.

E. Conclusions

28. Formalizing an institutional setup for the macroprudential policy in Peru could enhance the systematic analysis of systemic risks in the economy, and facilitate information sharing, actions and accountability. While Peru has been at the forefront on the implementation of macroprudential instruments, the institutional framework is relatively informal and involves independent institutions with a general mandate for financial stability. The setup lacks clear mandates on macroprudential policy, and could be prone to inaction. A financial stability council could facilitate the integration of macroprudential policies in the policy toolkit, and enhance its complementary role with macroeconomic and microprudential policies.

29. A council could help the authorities form a consolidated appreciation of risks, foster consensus on the appropriate policy mix, and identify and monitor vulnerabilities. The council could also help the authorities identify overlaps and gaps in monitoring vulnerabilities. Information and analytic expertise relevant to macroprudential policy should be readily available to the macroprudential structure. The central bank needs to play a prominent role in the financial stability council because of its central role on price stability and as a lender of last resort. The participation of the Ministry of Economy and Finance in the financial stability council would need to be protected to avoid pressures from the political cycle.

Table 1.

Stylized Institutional Models for Macroprudential Policy

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Source: Neir et al. (2011)


  • Ingves, S., 2011, “Central Bank Governance and Financial Stability, a Report by a Study Group” (Basel, Bank of International Settlements), May.

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  • Lima, Juan Manuel, and Enrique Montes, Carlos Varela, and Johannes Wiegand, 2005, “Sectoral Balance Sheet Mismatches and Macroeconomic Vulnerabilities in Colombia, 1996–2003,IMF Working Paper (WP) 06/5 (Washington: International Monetary Fund).

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  • Nier, E., J. Osinski, L.I. Jacome, and P. Madrid, 2011a, “Towards Effective Macroprudential Policy Frameworks: An Assessment of Stylized Institutional Models,IMF Working Paper 11/250 (Washington: International Monetary Fund).

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  • Nier, E., J. Osinski, L.I. Jacome, and P. Madrid, 2011b, “Institutional Models for Macroprudential Policy,IMF Staff Discussion Note No. 11/18 (Washington: International Monetary Fund).

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  • Terrier, G., R. Valdes, C. Tovar, J. Chan-Lau, C. Fernandez-Valdovinos, M. Garcia-Escribano, C. Medeiros, M. Tang, M. Vera Martin, and C. Walker, 2011, “Policy Instruments to Lean Against the Wind in Latin America, IMF Working Paper 11/159 (Washington: International Monetary Fund).

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Prepared by M. Vera Martin (WHD).


See IMF WP/11/159.


For example, see IMF Working Paper (WP) 06/5 for a detailed balance sheet analysis for Colombia.


See IMF (2011a, 2011b).


The draft legislation calls for the Financial Services Authority to be dismantled and a new subsidiary of the Bank, called the Prudential Regulatory Authority, to be created to supervise banks and insurers. The Bank would also get a new body, the Financial Policy Committee that would be charged with identifying and reducing looming threats to financial stability. The governor would be expected to chair the FPC and the board of the new PRA, in addition to his traditional duties as head of the Bank and the monetary policy committee.


For details, see Box 1 of the Ingves report (BIS, 2011).


In September 2008, the Council members released a joint Memorandum of Understanding (MOU) dealing specifically with financial crisis management arrangements. The MOU builds on the co-operative arrangements that have been in place for a number of years and which have been set out in bilateral Memoranda of Understanding signed between various members of the Council. They also establish regular bilateral coordination arrangements that aim, among other things, to ensure close consultation and to avoid overlaps and gaps in regulatory coverage. See for details.