## _sdn1118

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---

### Overview and purpose
- The note assesses institutional models for macroprudential policy by:
  - (i) presenting high-level requirements for an effective institutional model;
  - (ii) assessing strengths and weaknesses of identified models against these criteria;
  - (iii) discussing mechanisms to address weaknesses (Section IV).
- High-level requirements for an effective institutional model:
  - Effective identification, analysis and monitoring of systemic risk, including through (a) assuring access to relevant information; and (b) using existing resources and expertise.
  - Timely and effective use of macroprudential policy tools, by (a) creating strong mandate and powers; (b) enhancing ability and willingness to act; and (c) assuring appropriate accountability.
  - Effective coordination in risk assessments and mitigation, to reduce gaps and overlaps in risk identification and mitigation, while preserving autonomy of separate policy functions.

### Core requirements and Box 1 key desirables
- Macroprudential policy needs three key elements:
  - (i) information and resources,
  - (ii) a mandate and a range of powers,
  - (iii) a framework to hold the policymaker accountable for the mitigation of systemic risk.
- Box 1 — Key Desirables for Macroprudential Policy Arrangements (selected items preserved exactly):
  - General
    - 1. The central bank should play an important role in macroprudential policymaking.
    - 2. Complex and fragmented regulatory structures are unlikely to be conducive to successful mitigation of systemic risk and should therefore be avoided.
    - 3. Participation of the treasury in the policy process is useful, but a leading role poses risks.
    - 4. Systemic risk prevention and crisis management are different policy functions that should be supported by separate organizational arrangements.
    - 5. Macroprudential policy frameworks should not become a vehicle to compromise the autonomy of other established policies.
    - 6. Arrangements need to take account of country-specific circumstances.
  - Provide for effective identification, analysis, and monitoring of systemic risk
    - 7. Mechanisms for effective sharing of all information needed to assess systemic risks should be in place.
    - 8. At least one institution involved in assessing systemic risk should have access to all relevant data and information. It should be the one that disposes of the best existing expertise to assess systemic risk.
    - 9. Mechanisms are needed to challenge dominant views of one institution.
  - Provide for timely and effective use of macroprudential policy tools
    - 10. Institutional mechanisms should support willingness to act against the buildup of systemic risk and reduce the risk of delay in policy actions.
    - 11. A lead macroprudential authority should be identified and be provided with a clear mandate and powers, in a manner that harnesses incentives of existing institutions to mitigate systemic risk.
    - 12. The mandate needs to be matched by sufficient powers, including to initiate the use of prudential tools to address systemic risk. Mechanisms should be established to expand powers when needed.
    - 13. The mandate should give primacy to the mitigation of systemic risk, but include secondary objectives to ensure that the policymaker takes into account costs and trade-offs.
    - 14. To guard against overly restrictive or inadequate policy, proper accountability and transparency need to be put in place, without unduly compromising the effectiveness of macroprudential policy.
  - Provide for effective coordination across policies to address systemic risk
    - 15. Institutional integration of financial regulatory functions within the central bank can support effective coordination of macroprudential policy with monetary as well as microprudential policy, but also requires safeguards.
    - 16. Where institutional separation of policy decisions and control over policy tools cannot be avoided, the legal framework needs to assign formal powers to recommend or direct action of other policymakers.
    - 17. Where there is distributed decision making among several agencies, establishing a coordinating committee is useful, but may not necessarily be sufficient to overcome collective action and accountability problems.

### Stylized institutional models and distinguishing dimensions
- Typology emphasizes five distinguishing dimensions:
  - Degree of institutional integration of central bank and financial regulatory functions.
  - Ownership of macroprudential policy (which institution or set of institutions is held accountable).
  - Role of the treasury (active, passive, or nonexistent).
  - Institutional separation of policy decisions from control over policy instruments.
  - Existence of a separate body coordinating across policies to address systemic risk.
- Seven stylized models capture the majority of arrangements in place or being developed across countries, forming three broad groups by degree of institutional integration between central bank and regulatory agencies.

### Comparative strengths and weaknesses by model group

- Full Integration (Model 1 and variants)
  - Strengths:
    - Management can assure flow of information and put in place incentives for proactive delivery of relevant prudential information to the decision maker (the Board).
    - Leverages existing expertise from monetary policy, payment systems, and lender of last resort roles; central banks have experience in communicating risks to markets and the public (IMF 2011a).
    - Clear assignment of mandate and responsibility to a single agency; central bank incentives to act are strong because failure affects price stability goals and increases likelihood of lender of last resort actions.
    - Central bank independence reduces risk of delayed action due to political pressures or lobbying.
    - Internal coordination: macroprudential, monetary, and microprudential coordination occurs within one organization; reduces mismatches between mandates and powers; coherent risk messaging; implementation by same organization avoids conflicts with operational autonomy of separate agencies.
  - Weaknesses:
    - Lacks institutional mechanisms to challenge “house views” formed within one institution.
    - Few safeguards against overly aggressive use of macroprudential policy; concentrates powers in the central bank, especially if it also conducts monetary policy.
    - Perceived failures in prudential policy can affect credibility of monetary policymaker absent separate accountability frameworks for monetary and prudential action.
    - Central bank may inherit consumer and investor protection objectives and conduct of business functions that can distract from systemic risk objectives.
    - Treasury typically excluded from policy discussions, which can be costly when coordination with government (e.g., legislation, fiscal measures) is required.

- Partial Integration (Models 2, 3, and 4; twin peaks variants)
  - Model features:
    - Twin peaks: close institutional integration between central bank and prudential supervisor for potentially systemic financial institutions, while conduct/activity regulation is separate.
  - Strengths:
    - Central bank retains access to prudential data and strong control over prudential tools to mitigate systemic risks.
  - Weaknesses and coordination issues:
    - Conduct and securities regulators outside central bank may inadequately engage in systemic risk identification and mitigation; access to securities market data less assured; macroprudential policymaker may lack control over conduct/securities tools.
    - An institutional “bridge” to conduct and securities regulators is useful; representation of these regulators on a policy-making committee is recommended.
  - Committees related to central bank (e.g., Financial Policy Committee, FPC)
    - Strengths relative to Board decision making:
      - Dedicated committee without monetary policy role can limit reputational risks and allow visible separate accountability arrangements.
      - Allows treasury participation without undermining monetary policy independence, aiding coordination when legislative or fiscal measures are needed.
    - Cost:
      - Potential reduced coordination with monetary policy; overlap in committee composition can mitigate this risk.
  - Independent committee
    - Advantages:
      - More balanced structure mitigates risk that one institution’s views go unchallenged.
    - Disadvantages:
      - Greater risk of persistent differences of view and decision delays.
      - Harder to establish clear accountability; public may not understand ultimate responsibility.
      - Greater separation between decision and control over tools; reliance on compensating mechanisms increases.
    - Role of the treasury on independent committees:
      - Advantage: treasury can help garner political support.
      - Risks: short-term political considerations may prevail; operational autonomy of prudential authority and central bank monetary independence can be undermined.

- Separation (Models 5, 6, and 7; multiagency setups)
  - Features:
    - Financial regulatory functions (other than payments oversight) housed outside central bank; identification and mitigation of systemic risk are multiagency efforts; “distributed decision making.”
  - Strengths:
    - Keeps agencies focused on main objectives (central bank on price stability; supervisor on safety and soundness of institutions).
    - Facilitates separate accountability, strong institutional cultures, and avoids dominance of a single institution.
  - Weaknesses:
    - No single institution may have all information required to analyze interlinked aspects of systemic risk; rivalry, turf issues, or legal obstacles can impede information sharing.
    - Higher risk of “gaps” (undetected/unaddressed risks) and “overlaps” (wasteful or uncoordinated actions), including conflicting public communications.
    - Collective responsibility dilutes accountability and incentives; cooperation failures reduce incentives for systemic risk reduction.
    - Difficult to combine macroeconomic and institution-specific expertise without dedicating scarce resources to common goals.
    - Disagreements between agencies can delay action (example: UK under previous model where prudential liquidity tightening occurred only after the crisis).
    - Central banks lacking prudential tools may overuse alternative instruments (e.g., reserve requirements) leading to suboptimal policy mix.
  - Role of coordinating committee:
    - Present in Models 5 and 6, absent in Model 7.
    - Can facilitate information exchange and engagement, but may not fully address deep-rooted accountability and incentive problems.

### Mechanisms to address model weaknesses (Section IV)
- General principle: weaknesses of models can be addressed by tailored compensating mechanisms; some mechanisms are broadly useful across models.

- A. Disciplining independent use of strong powers
  - Mechanisms:
    - Clear legal mandate that opens up and constrains discretionary use of macroprudential powers; mandate can specify secondary objectives to ensure consideration of costs and trade-offs.
    - Strong transparency and accountability focused on processes: (i) ex ante communication of overall strategy; (ii) detailed communication of deliberations leading to decisions; (iii) ex post assessment of effectiveness.
    - Balance accountability with preserving policy autonomy; avoid accountability mechanisms being exploited to influence outcomes.
    - Internal checks and balances via composition of decision-making committee including supervisory agencies outside central bank and independent experts; use of advisory committees (e.g., Scientific Advisory Committee to the ESRB).

- B. Compensating for separation of decisions from control over instruments
  - Mechanisms:
    - Vest macroprudential authority with binding powers over specific, well-defined macroprudential instruments carved out from separate regulatory domains (example: dynamic capital buffer; instruments in securities domain such as repo margin requirements).
    - Issue non-binding “recommendations” to separate authorities (as for FPC in UK, FSOC in US, ESRB in EU) with formal “act or explain” mechanisms to increase compliance.
    - Publication of recommendations to increase follow-up and ownership; ensure membership of implementing agencies on decision-making bodies.
    - Emphasize financial stability in mandates of separate regulators to foster engagement.
    - Non-binding recommendations can target legislative or executive branches when legal change is needed; macroprudential framework should enable coordination beyond financial regulatory tools to fiscal, exchange rate, housing market and competition policy.
    - Power to request information from constituent agencies or to collect information directly from firms (example: Office of Financial Research).

- C. Reducing the risk of delayed decision
  - Mechanisms:
    - Careful design of voting arrangements: prefer simple majority or qualified majority rather than unanimity.
    - Ensure a strong voice of the central bank on policy-making or coordinating committees (example: Mexico central bank has three voting seats on a committee of 10 chaired by the treasury).
    - Distinguish macroprudential policy arrangements from crisis management arrangements; consider establishing a crisis management committee chaired by the treasury alongside a macroprudential committee chaired by the central bank.
    - Use accountability mechanisms that promote timely action (example: FSOC members and FSOC must testify before Congress that all agencies have taken sufficient action).

- D. Fostering cooperation in risk assessment and mitigation
  - Mechanisms:
    - Make mitigation of systemic risk an objective for all relevant agencies to increase engagement and resource allocation.
    - Establish a formal coordinating committee (preferably in law) to foster cooperation, issue public warnings and recommendations to constituent agencies (example: Mexico), and address overlaps and gaps.
    - Ensure all relevant data are available to agencies or at least to a lead agency; remove legal impediments to data sharing; establish formal duty to make available information needed to assess systemic risk.
    - Provide committee powers to request information from separate agencies or to collect information from firms (as in new UK model; Office of Financial Research example).

### Conclusion: general and specific lessons
- No “one size fits all”; arrangements must reflect local conditions, historical, legal and constitutional constraints.
- Weaknesses of models can often be mitigated by safeguards or mechanisms, though not always fully effective; informal arrangements may be vulnerable to changes in personnel and relationships.
- General lessons:
  - The central bank should play an important role in macroprudential policy to harness incentives and expertise and to assure coordination with monetary policy, provision of liquidity, and payment systems oversight.
  - Complex and fragmented regulatory and supervisory structures are unlikely to be conducive to effective mitigation of system-wide risks; fragmentation reduces effectiveness of risk identification and the chance that identification leads to forceful action.
  - Participation of the treasury is useful but a dominant treasury role poses important risks (delay in action, compromise of institutional independence).
  - Systemic risk prevention and crisis management are different functions and should be supported by separate arrangements; treasury naturally assumes a strong role in crisis management while independent agencies can balance this role.
- Specific desirables for identification, analysis and monitoring:
  - Mechanisms for effective sharing of information; remove legal obstacles; empower authorities to collect and centralize relevant data.
  - At least one institution involved in systemic risk analysis should have access to all available data.
  - Leverage existing expertise (central banks often well-placed) while establishing mechanisms to challenge dominant institutional views.
- Specific desirables to promote timely and effective use of tools:
  - Promote willingness to act and reduce delayed policy action via legal mandate and accountability.
  - Assign macroprudential mandate to a single institution, body or decision-making committee that can be held accountable; ensure other institutions include financial stability in mandates to support collaboration.
  - Mandates and accountability should guard against overly restrictive macroprudential policy by specifying secondary objectives and requiring transparency (policy strategy publication, decision communication, ex post assessment).
- Specific desirables to ensure coordination without undermining autonomy:
  - Institutional integration of financial regulatory functions within the central bank can support coordination but requires safeguards and separate accountability mechanisms for monetary and macroprudential policy.
  - Where decision-making and control over tools are separated, mechanisms (non-binding recommendations or binding directions for specific instruments) should be available to direct action while preserving operational autonomy.
  - When powers are distributed, a coordinating committee is useful to build shared risk appreciation and consensus on policy mix, but may not fully solve the “commons” accountability problem.

*Source: Executive Summary and Section 5 excerpts from IMF staff discussion note "Institutional Models for Macroprudential Policy" (SDN _sdn1118).*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and purpose
- A number of countries are reviewing institutional frameworks for financial stability to support the development of a macroprudential policy function.
- The paper provides guidance for reviewing institutional arrangements supporting macroprudential policies by:
  - Identifying a distinct set of stylized institutional models.
  - Setting out criteria for assessing different models.
  - Examining strengths and weaknesses of models.
  - Exploring ways to improve existing institutional setups.
- Institutional arrangements will depend on country-specific circumstances; there is no “one size fits all.”

### Core requirements for effective macroprudential policy
- Macroprudential policy needs to be supported by three key elements:
  - (i) information and resources,
  - (ii) a mandate and a range of powers, and
  - (iii) a framework to hold the policymaker accountable for the mitigation of systemic risk.
- The policy framework also needs to ensure coordination across policies that affect systemic risk.

### General findings
- Complex and fragmented institutional structures can create frictions in risk identification and mitigation that reduce effectiveness of macroprudential policy.
- To ensure accountability for policy outcomes, it may often be desirable to identify a lead authority or policymaking committee and to vest it with the mandate and powers to conduct macroprudential policy.
- The central bank should play an important role to harness:
  - its expertise in risk assessment,
  - its incentives to mitigate systemic risk,
  - and to ensure coordination with monetary policy.
- Participation of the treasury in the policy process is useful, but a strong role can pose risks to the autonomy of other policy fields (monetary and microprudential policy) and can lead to delay when policies are needed to constrain financial markets in good times.
- Separate arrangements for crisis prevention and crisis management will be useful in many cases.

### Box 1 — Key Desirables for Macroprudential Policy Arrangements
General
- 1. The central bank should play an important role in macroprudential policymaking.
- 2. Complex and fragmented regulatory structures are unlikely to be conducive to successful mitigation of systemic risk and should therefore be avoided.
- 3. Participation of the treasury in the policy process is useful, but a leading role poses risks.
- 4. Systemic risk prevention and crisis management are different policy functions that should be supported by separate organizational arrangements.
- 5. Macroprudential policy frameworks should not become a vehicle to compromise the autonomy of other established policies.
- 6. Arrangements need to take account of country-specific circumstances.

Provide for effective identification, analysis, and monitoring of systemic risk
- 7. Mechanisms for effective sharing of all information needed to assess systemic risks should be in place.
- 8. At least one institution involved in assessing systemic risk should have access to all relevant data and information. It should be the one that disposes of the best existing expertise to assess systemic risk.
- 9. Mechanisms are needed to challenge dominant views of one institution.

Provide for timely and effective use of macroprudential policy tools
- 10. Institutional mechanisms should support willingness to act against the buildup of systemic risk and reduce the risk of delay in policy actions.
- 11. A lead macroprudential authority should be identified and be provided with a clear mandate and powers, in a manner that harnesses incentives of existing institutions to mitigate systemic risk.
- 12. The mandate needs to be matched by sufficient powers, including to initiate the use of prudential tools to address systemic risk. Mechanisms should be established to expand powers when needed.
- 13. The mandate should give primacy to the mitigation of systemic risk, but include secondary objectives to ensure that the policymaker takes into account costs and trade-offs.
- 14. To guard against overly restrictive or inadequate policy, proper accountability and transparency need to be put in place, without unduly compromising the effectiveness of macroprudential policy.

Provide for effective coordination across policies to address systemic risk
- 15. Institutional integration of financial regulatory functions within the central bank can support effective coordination of macroprudential policy with monetary as well as microprudential policy, but also requires safeguards.
- 16. Where institutional separation of policy decisions and control over policy tools cannot be avoided, the legal framework needs to assign formal powers to recommend or direct action of other policymakers.
- 17. Where there is distributed decision making among several agencies, establishing a coordinating committee is useful, but may not necessarily be sufficient to overcome collective action and accountability problems.

### Institutional models and dimensions
- The paper develops a typology of stylized models emphasizing five distinguishing dimensions:
  - Degree of institutional integration of central bank and financial regulatory functions.
  - Ownership of macroprudential policy (which institution or set of institutions is held accountable).
  - Role of the treasury (active, passive, or nonexistent).
  - Institutional separation of policy decisions from control over policy instruments.
  - Existence of a separate body coordinating across policies to address systemic risk.
- Seven stylized models capture the majority of arrangements in place or being developed across countries (Table 1), forming three broad groups by degree of institutional integration between central bank and regulatory agencies.

### Assessment approach and caveats
- The analysis is conceptual because dedicated macroprudential policy frameworks are recent or emerging, limiting empirical assessment.
- Macroprudential policy is not a panacea and cannot substitute for sound fiscal policy or structural policies; it needs to be complemented by strong microprudential supervision and an effective resolution framework to avoid “too important to fail” outcomes.
- The assessment focuses on how elements required for a macroprudential policy function (information and resources, mandate and powers, accountability) are assigned to or distributed across institutions and committees, and how cooperation is ensured when powers and resources are distributed.

### Comparative strengths and weaknesses
- Each assessed model has pros and cons; differences arise in the tally of strengths and weaknesses.
- Complex and fragmented structures tend to hinder risk identification and mitigation.
- Mechanisms can be introduced to compensate for specific weaknesses; some mechanisms are broadly useful and likely to enhance macroprudential effectiveness across multiple models.

### Recent trends (Box 2)
- Post-crisis, many countries are reviewing institutional frameworks for financial stability:
  - Advanced economies, especially in Europe, have moved toward integrating prudential functions into the central bank (examples cited include a “twin peaks” model and cases where all supervision is conducted by the central bank).
  - Dedicated policy-making committees have been created in some countries (examples include the Financial Policy Committee and the Financial Stability Oversight Council).
  - Emerging market countries often create macroprudential committees; roles vary (in some cases chaired by Minister of Finance; in Asia, committees have been established within central banks chaired by the Governor).
- Table 1 illustrates stylized models and maps examples of country arrangements to the models (Table not reproduced here).

### Mechanisms to address model weaknesses (topics explored in the paper)
- A. Disciplining independent use of strong powers.
- B. Compensating for separation of decisions from control over instruments.
- C. Reducing the risk of delayed decision.
- D. Fostering cooperation in risk assessment and mitigation.

### Concluding guidance
- Institutional arrangements conducive to effective mitigation of systemic risk need to:
  - (i) support effective identification of risks through access to information and relevant expertise,
  - (ii) provide incentives for the timely and effective use of policy tools,
  - (iii) ensure cooperation across policies while preserving the autonomy of established policy functions.
- Many desirable features are identified, notably the central bank’s important role and the need to guard against fragmented structures and an overly dominant treasury role.
- Introducing compensatory mechanisms can mitigate weaknesses across models; several such mechanisms are broadly useful.

*Source: Executive Summary of IMF staff discussion note titled "Institutional Models for Macroprudential Policy" (Executive Summary section).*

### 5. Existence of separate body coordinating across policies

### 5. Existence of separate body coordinating across policies

### Overview
- The document assesses prevailing and emerging institutional models for macroprudential policy in three steps: (i) present high-level requirements for an effective institutional model; (ii) assess strengths and weaknesses of identified models against these criteria; (iii) discuss mechanisms to address weaknesses (Section IV).
- High-level requirements for an effective institutional model:
  - Effective identification, analysis and monitoring of systemic risk, including through (a) assuring access to relevant information; and (b) using existing resources and expertise.
  - Timely and effective use of macroprudential policy tools, by (a) creating strong mandate and powers; (b) enhancing ability and willingness to act; and (c) assuring appropriate accountability.
  - Effective coordination in risk assessments and mitigation, to reduce gaps and overlaps in risk identification and mitigation, while preserving autonomy of separate policy functions.

### Strengths and Weaknesses: Full Integration (Model 1 and variants)
- Strengths:
  - Management can assure flow of information and put in place incentives for proactive delivery of relevant prudential information to the decision maker (the Board).
  - Leverages existing expertise from monetary policy, payment systems, and lender of last resort roles; central banks have experience in communicating risks to markets and the public (IMF 2011a).
  - Clear assignment of mandate and responsibility to a single agency; central bank incentives to act are strong because failure affects price stability goals and increases likelihood of lender of last resort actions.
  - Central bank independence reduces risk of delayed action due to political pressures or lobbying.
  - Internal coordination: macroprudential, monetary, and microprudential coordination occurs within one organization; reduces mismatches between mandates and powers; coherent risk messaging; implementation by same organization avoids conflicts with operational autonomy of separate agencies.
- Weaknesses:
  - Lacks institutional mechanisms to challenge “house views” formed within one institution.
  - Few safeguards against overly aggressive use of macroprudential policy; concentrates powers in the central bank, especially if it also conducts monetary policy.
  - Perceived failures in prudential policy can affect credibility of monetary policymaker absent separate accountability frameworks for monetary and prudential action.
  - Central bank may inherit consumer and investor protection objectives and conduct of business functions that can distract from systemic risk objectives.
  - Treasury typically excluded from policy discussions, which can be costly when coordination with government (e.g., legislation, fiscal measures) is required.

### Strengths and Weaknesses: Partial Integration (Models 2, 3, and 4; twin peaks variants)
- Model features:
  - Twin peaks: close institutional integration between central bank and prudential supervisor for potentially systemic financial institutions, while conduct/activity regulation is separate.
  - Examples include UK new model (prudential agency as subsidiary of Bank of England; Financial Conduct Authority as separate conduct regulator), United States (Federal Reserve supervises systemically important holding companies with designation by FSOC), Belgium (twin peaks following Netherlands model).
- Strengths:
  - Central bank retains access to prudential data and strong control over prudential tools to mitigate systemic risks.
- Weaknesses and coordination issues:
  - Conduct and securities regulators outside central bank may inadequately engage in systemic risk identification and mitigation; access to securities market data less assured; macroprudential policymaker may lack control over conduct/securities tools.
  - An institutional “bridge” to conduct and securities regulators is useful; representation of these regulators on a policy-making committee is recommended.
- Committee related to central bank (e.g., Financial Policy Committee, FPC):
  - Strengths relative to Board decision making:
    - Dedicated committee without monetary policy role can limit reputational risks and allow visible separate accountability arrangements.
    - Allows treasury participation without undermining monetary policy independence, aiding coordination when legislative or fiscal measures are needed.
  - Cost:
    - Potential reduced coordination with monetary policy; overlap in committee composition can mitigate this risk.
- Independent committee:
  - Characteristics:
    - Overall responsibility for financial stability shifts toward an independent committee with central bank participation.
  - Advantages:
    - More balanced structure mitigates risk that one institution’s views go unchallenged.
  - Disadvantages:
    - Greater risk of persistent differences of view and decision delays.
    - Harder to establish clear accountability; public may not understand ultimate responsibility.
    - Greater separation between decision and control over tools; reliance on compensating mechanisms increases.
  - Role of the treasury on independent committees:
    - Advantage: treasury can help garner political support.
    - Risks: short-term political considerations may prevail; operational autonomy of prudential authority and central bank monetary independence can be undermined.

### Strengths and Weaknesses: Separation (Models 5, 6, and 7; multiagency setups)
- Features:
  - Financial regulatory functions (other than payments oversight) housed outside central bank; identification and mitigation of systemic risk are multiagency efforts; “distributed decision making.”
- Strengths:
  - Keeps agencies focused on main objectives (central bank on price stability; supervisor on safety and soundness of institutions).
  - Facilitates separate accountability, strong institutional cultures, and avoids dominance of a single institution.
- Weaknesses:
  - No single institution may have all information required to analyze interlinked aspects of systemic risk; rivalry, turf issues, or legal obstacles can impede information sharing.
  - Higher risk of “gaps” (undetected/unaddressed risks) and “overlaps” (wasteful or uncoordinated actions), including conflicting public communications.
  - Collective responsibility dilutes accountability and incentives; cooperation failures reduce incentives for systemic risk reduction.
  - Difficult to combine macroeconomic and institution-specific expertise without dedicating scarce resources to common goals.
  - Disagreements between agencies can delay action (example: UK under previous model where prudential liquidity tightening occurred only after the crisis).
  - Central banks lacking prudential tools may overuse alternative instruments (e.g., reserve requirements) leading to suboptimal policy mix.
- Role of coordinating committee:
  - Present in Models 5 and 6, absent in Model 7.
  - Can facilitate information exchange and engagement, but may not fully address deep-rooted accountability and incentive problems.

### Mechanisms to Address Weaknesses of Models (Section IV)
- General principle: weaknesses of models can be addressed by tailored compensating mechanisms; some mechanisms are broadly useful across models.

A. Disciplining independent use of strong powers
- Mechanisms:
  - Clear legal mandate that opens up and constrains discretionary use of macroprudential powers; mandate can specify secondary objectives to ensure consideration of costs and trade-offs.
  - Strong transparency and accountability focused on processes: (i) ex ante communication of overall strategy; (ii) detailed communication of deliberations leading to decisions; (iii) ex post assessment of effectiveness.
  - Balance accountability with preserving policy autonomy; avoid accountability mechanisms being exploited to influence outcomes.
  - Internal checks and balances via composition of decision-making committee including supervisory agencies outside central bank and independent experts; use of advisory committees (e.g., Scientific Advisory Committee to the ESRB).

B. Compensating for separation of decisions from control over instruments
- Mechanisms:
  - Vest macroprudential authority with binding powers over specific, well-defined macroprudential instruments carved out from separate regulatory domains (example: dynamic capital buffer; instruments in securities domain such as repo margin requirements).
  - Issue non-binding “recommendations” to separate authorities (as for FPC in UK, FSOC in US, ESRB in EU) with formal “act or explain” mechanisms to increase compliance.
  - Publication of recommendations to increase follow-up and ownership; ensure membership of implementing agencies on decision-making bodies.
  - Emphasize financial stability in mandates of separate regulators to foster engagement.
  - Non-binding recommendations can target legislative or executive branches when legal change is needed; macroprudential framework should enable coordination beyond financial regulatory tools to fiscal, exchange rate, housing market and competition policy.
  - Power to request information from constituent agencies or to collect information directly from firms (example: Office of Financial Research).

C. Reducing risk of delayed decision
- Mechanisms:
  - Careful design of voting arrangements: prefer simple majority or qualified majority rather than unanimity.
  - Ensure a strong voice of the central bank on policy-making or coordinating committees (example: Mexico central bank has three voting seats on a committee of 10 chaired by the treasury).
  - Distinguish macroprudential policy arrangements from crisis management arrangements; consider establishing a crisis management committee chaired by treasury alongside a macroprudential committee chaired by the central bank.
  - Use accountability mechanisms that promote timely action (example: FSOC members and FSOC must testify before Congress that all agencies have taken sufficient action).

D. Fostering cooperation in risk assessment and mitigation
- Mechanisms:
  - Make mitigation of systemic risk an objective for all relevant agencies to increase engagement and resource allocation.
  - Establish a formal coordinating committee (preferably in law) to foster cooperation, issue public warnings and recommendations to constituent agencies (example: Mexico), and address overlaps and gaps.
  - Ensure all relevant data are available to agencies or at least to a lead agency; remove legal impediments to data sharing; establish formal duty to make available information needed to assess systemic risk.
  - Provide committee powers to request information from separate agencies or to collect information from firms (as in new UK model; Office of Financial Research example).

### Conclusion: General and Specific Lessons
- No “one size fits all”; arrangements must reflect local conditions, historical, legal and constitutional constraints.
- Weaknesses of models can often be mitigated by safeguards or mechanisms, though not always fully effective; informal arrangements may be vulnerable to changes in personnel and relationships.
- General lessons:
  - The central bank should play an important role in macroprudential policy to harness incentives and expertise and to assure coordination with monetary policy, provision of liquidity, and payment systems oversight.
  - Complex and fragmented regulatory and supervisory structures are unlikely to be conducive to effective mitigation of system-wide risks; fragmentation reduces effectiveness of risk identification and the chance that identification leads to forceful action.
  - Participation of the treasury is useful but a dominant treasury role poses important risks (delay in action, compromise of institutional independence).
  - Systemic risk prevention and crisis management are different functions and should be supported by separate arrangements; treasury naturally assumes a strong role in crisis management while independent agencies can balance this role.
- Specific desirables for identification, analysis and monitoring:
  - Mechanisms for effective sharing of information; remove legal obstacles; empower authorities to collect and centralize relevant data.
  - At least one institution involved in systemic risk analysis should have access to all available data.
  - Leverage existing expertise (central banks often well-placed) while establishing mechanisms to challenge dominant institutional views.
- Specific desirables to promote timely and effective use of tools:
  - Promote willingness to act and reduce delayed policy action via legal mandate and accountability.
  - Assign macroprudential mandate to a single institution, body or decision-making committee that can be held accountable; ensure other institutions include financial stability in mandates to support collaboration.
  - Mandates and accountability should guard against overly restrictive macroprudential policy by specifying secondary objectives and requiring transparency (policy strategy publication, decision communication, ex post assessment).
- Specific desirables to ensure coordination without undermining autonomy:
  - Institutional integration of financial regulatory functions within the central bank can support coordination but requires safeguards and separate accountability mechanisms for monetary and macroprudential policy.
  - Where decision-making and control over tools are separated, mechanisms (non-binding recommendations or binding directions for specific instruments) should be available to direct action while preserving operational autonomy.
  - When powers are distributed, a coordinating committee is useful to build shared risk appreciation and consensus on policy mix, but may not fully solve the “commons” accountability problem.

*Source: IMF chapter titled "5. Existence of separate body coordinating across policies" (excerpts from the supplied PDF content).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2011/_sdn1118.pdf_