Discretionary macroprudential policies aim to be countercyclical by adjusting risk-taking across the financial cycle. This column argues that the opposite effect may happen in certain cases. Depending on how regulators measure risk and how they react, the eventual outcome may well be procyclical, with serious unintended consequences.
Jon Danielsson, Robert Macrae, Dimitri Tsomocos, Jean-Pierre Zigrand, 15 December 2016
Philip Lane, 23 August 2015
This paper examines the cyclical behaviour of country-level macro-financial variables under EMU. Monetary union strengthened the covariation pattern between the output cycle and the financial cycle, while macro-financial policies at national and area-wide levels were insufficiently counter-cyclical during the 2003-2007 boom period. We critically examine the policy reform agenda required to improve macro-financial stability.
Dennis Reinhardt, Rhiannon Sowerbutts, 27 September 2015
Regulatory arbitrage is an essential feature of modern banking. This column presents new evidence on avoiding macroprudential policies by borrowing from abroad. Domestic non-banks borrow more from abroad after an increase in capital requirements, but not after an increase in lending standards. This is most likely because of differences in the way the two regulations apply, and suggests that we should have strong frameworks for reciprocating capital regulation.
Kenneth Kuttner, Ilhyock Shim, 13 June 2015
The housing market, almost everywhere, is a major source of financial instability. This column presents research suggesting that certain types of macroprudential policy may well be useful additions to the policy toolbox, but that the evidence is far from definitive. Despite promising signs, it would be unwise to rely solely on macroprudential policies for taming financial booms and busts.
Òscar Jordà, Moritz Schularick, Alan Taylor, 18 February 2015
Housing played a major role in the Global Crisis, and some worry that the ultra-low interest rate environment is inflating new housing bubbles. Using 140 years of data from 14 advanced economies, this column provides a quantitative measure of the financial stability risks that stem from extended periods of ultra-low interest rates. The historical insights suggest that the potentially destabilising by-products of easy money must be taken seriously and weighed carefully against the stimulus benefits. Macroeconomic stabilisation policy has implications for financial stability, and vice versa. Resolving this dichotomy requires central banks greater use of macroprudential tools.
Charles Goodhart, Melanie Baker, 14 October 2013
Help-to-Buy was set up to stimulate the economy and help working people buy a home. Critics worry that it has no supply effect and thus just pushes up house prices. This column argues that the policy will boost supply and that it could also become a useful macroprudential tool. The Financial Policy Committee, in conjunction with others, could adjust parameters to manage volatility and avoid bubbles.
Jeffrey Chwieroth, Jon Danielsson, 06 September 2013
Central banks frequently lead the macroprudential policy implementation. The hope is that their credibility in conquering inflation might rub off on macroprudential policy. This column argues the opposite. The fuzziness of the macroprudential agenda and the interplay of political pressures may undermine monetary policy.
Klaus Düllmann, Natalia Tente, 27 June 2013
The macroprudential approach to banks’ capital requirements aims to internalise the systemic risk of big banks while encouraging banks to accumulate capital buffers during good times. This column presents a measure of systemic risk and risk contributions that could help economists better calculate countercyclical capital surcharges.
Jean-Pierre Landau, 18 April 2013
Low interest rates and bank deleveraging combine to produce slow growth and rising financial risks in advanced economies. This column argues that appropriate macroprudential policies could contribute to redirecting risk taking, promoting growth and reducing uncertainty through more orderly deleveraging in the financial sector.
Charles Goodhart, Enrico Perotti, 29 February 2012
Banking runs are a major threat to modern finance. This column makes the case for preventive tools over ex post intervention. It argues for assigning responsibility and novel tools to microprudential regulators for supervising individual liquidity and capital ratios, and to central banks those tools for aggregate liquidity-risk management, with overall control switching to fiscal authorities once intervention appears to require fiscal means.
Hans Gersbach, 12 October 2011
Current macroeconomic policymaking suffers from an inadequate range of instruments and the absence of a comprehensive assignment of responsibilities. This column introduces a new CEPR Policy Insight designed to remedy these shortcomings. It proposes a framework for monetary, macroprudential, and microprudential policies.
Charles Goodhart, Dimitri Tsomocos, Udara Peiris, Alexandros Vardoulakis, 18 February 2010
The global financial crisis has led many to propose regulatory measures that will reduce the idiosyncratic and systemic risk of banks. This column argues in favour of the suggestion by the Bank for International Settlements to block banks from paying dividends to shareholders or bonuses if their capital levels fall below a minimum threshold.
Claudio Borio, 14 April 2009
There is now a growing consensus among policymakers and academics that a key element to improve safeguards against financial instability is to strengthen the “macroprudential” orientation of regulatory and supervisory frameworks. This column explains the approach and various issues that regulators must address to implement it.