## Macroprudential Policy—Filling the Black Hole

_IMF Blog, April 8, 2011_

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**Canonical URL:** [Macroprudential Policy—Filling the Black Hole](https://www.imf.org/en/blogs/articles/2011/04/08/macroprudential-policy-filling-the-black-hole)

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## Bibliographic details
- Authors: Jose-Vinals
- Published: April 8, 2011

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### Overview
- Author: José Viñals
- Date: April 8, 2011
- Main message: The global financial crisis revealed a "gaping hole" in policy toolkits. Macroprudential policy is intended to contain system-wide risks in the financial sector and requires a coherent framework, new tools, and stronger international cooperation.

### Systemic risk indicators and policy tools
- Systemic risk indicators focus on system-wide risks (not individual institutions) and include:
  - resilience of the financial system to shocks
  - availability of funding in financial markets
  - market participants’ interconnectedness
  - household indebtedness
  - international capital flows
- Policy tools listed include:
  - countercyclical capital requirements
  - loan-to-value ratios to address housing bubbles
  - systemic capital and liquidity surcharges reflecting institutions’ contribution to systemic risk

### Progress reported and evidence needs
- IMF Executive Board discussed a new IMF paper describing main elements of macroprudential policy.
- The paper draws on a survey of 63 member countries.
- The paper and Board discussion indicate:
  - significant progress has been made, but unevenly
  - further efforts are needed to develop new tools and broader, forward-looking measures of systemic risk
  - a policy framework based on international best practices is needed to reduce regulatory arbitrage by global financial firms
- Open empirical questions highlighted:
  - How strong is the evidence that macroprudential policies can prevent or contain asset price bubbles?
  - Which policy tool—or combination of tools—should be used?
  - How to manage conflicts with monetary and fiscal objectives?
  - Which institutions are best placed to detect and contain systemic risks?

### Policy objectives and roles
- Macroprudential policy complements (and differs from) traditional macroeconomic policies and micro-prudential measures by focusing on the health of the financial system as a whole.
- Two interrelated drivers of systemic risk that new tools would target:
  - (i) risks associated with swings in credit and liquidity cycles driven by pro-cyclical forces such as leverage and herding behavior by financial institutions, non-financial firms, and households
  - (ii) concentration of risk in highly interconnected financial institutions and markets within and across national borders

### Challenges and recommended actions for policymakers
- Key tasks identified:
  - Create a comprehensive analytical framework and a consistent set of policy tools, including through rigorous back-testing.
  - Establish macroprudential authorities with clear mandates to enhance accountability and reduce the risk of political pressure; institutional arrangements should reflect country-specific characteristics.
  - Assure addressing all systemic risks and manage potential policy conflicts through cooperation among national authorities.
  - Increase international cooperation to ensure the consistent application of national macro-prudential policies.
- The IMF commits to support such efforts through its surveillance mandate and financial sector expertise.

### International process and next steps
- The G-20 requested the IMF, FSB, and BIS to develop a coherent macroprudential policy framework.
- The author anticipates a joint IMF-FSB-BIS progress report on the new macroprudential policy framework to be discussed at the G-20 Summit in November 2011.
- Closing argument: collective efforts to "fill the policy black hole" are framed as the best chance of avoiding future crises.

*Source: IMF Blog post "Macroprudential Policy—Filling the Black Hole" by José Viñals, April 8, 2011. The IMF is an organization of 191 countries.*

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## Content in this bundle

- **Macroprudential Policy: An Organizing Framework; IMF Policy Paper; March 14, 2011**
  - [Macroprudential Policy: An Organizing Framework; IMF Policy Paper; March 14, 2011 (Markdown version)](/external/np/pp/eng/2011/031411.pdf.md){rel="alternate" type="text/markdown"}
  - [Macroprudential Policy: An Organizing Framework; IMF Policy Paper; March 14, 2011 (PDF)](/external/np/pp/eng/2011/031411.pdf){rel="external" type="application/pdf"}
- **Macroprudential Policy: An Organizing Framework--Background Paper; IMF Policy Paper; March 14, 2011**
  - [Macroprudential Policy: An Organizing Framework--Background Paper; IMF Policy Paper; March 14, 2011 (Markdown version)](/external/np/pp/eng/2011/031411a.pdf.md){rel="alternate" type="text/markdown"}
  - [Macroprudential Policy: An Organizing Framework--Background Paper; IMF Policy Paper; March 14, 2011 (PDF)](/external/np/pp/eng/2011/031411a.pdf){rel="external" type="application/pdf"}

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## References

- [macroprudential policy measures](http://blogs.imf.org/2010/10/22/macro-prudential-policies-putting-the-%e2%80%9cbig-picture%e2%80%9d-into-financial-sector-regulation/)

_Source: https://www.imf.org/en/blogs/articles/2011/04/08/macroprudential-policy-filling-the-black-hole_