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
Jon Danielsson, Robert Macrae, 08 December 2016
Political risk is a major cause of systemic financial risk. This column argues that both the integrity and the legitimacy of macroprudential policy, or ‘macropru’, depends on political risk being included with other risk factors. Yet it is usually excluded from macropru, and that could be a fatal flaw.
Minouche Shafik, 22 November 2016
The spread of financial shocks globally has caused some to argue that capital accounts should be more closed, thereby shrinking the opportunities available to global savers and borrowers alike. That would put further downward pressure on interest rates in surplus economies, and upward pressure on borrowing costs in economies where the greatest opportunities lie. This column argues that by acting in their local interest, domestic macroprudential policymakers can safeguard against the risk of financial instability spilling across borders, while continuing to allow capital to flow to where it is of most use.