“Macro…, what?!” The New Buzz on Financial Stability
IMF Blog, March 23, 2012
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Bibliographic details
- Authors: Jose-Vinals, Nicols Eyzaguirre
- Published: March 23, 2012
Overview
- Authors: José Viñals, Nicolás Eyzaguirre
- Date: March 23, 2012
- Theme: Emergence of macroprudential policy as a central element of the policy toolkit to preserve economic stability and sustain growth in the aftermath of the global financial crisis.
- Definition emphasized: Macroprudential policy seeks to contain systemic risks in the financial system.
Examples of macroprudential instruments and uses
- Loan-to-value ratios
- Debt-to-income ratios
- Countercyclical loan loss provisions
- Purpose noted: To rein in rapid credit growth that—if unchecked—could destabilize the financial system, bring about a recession, and drive up unemployment.
IMF role and analysis
- The IMF has assumed a leadership role in macroprudential policy analysis.
- Recent IMF analysis examines policy options for designing effective institutional frameworks and instruments.
- The IMF’s surveillance and technical assistance activities are highlighted as highly beneficial; close coordination between these areas is seen as critical.
Designing effective macroprudential policies (conference insights)
- A high-level regional conference was co-hosted with the Central Bank of Uruguay to discuss how macroprudential policies can help achieve financial stability.
- Participants included central bank presidents, financial supervisors, and other senior policymakers from Latin America and some advanced economies.
- Conference topics: Proper institutional design for macroprudential policies and effective instruments.
Key points from participants:
- Financial stability is a responsibility shared by all policies.
- Strong macroeconomic policy frameworks, especially with flexible exchange regimes, are essential to prevent accumulation of financial imbalances that could lead to systemic risk.
- Effective microprudential policies, including effective supervision, are critical to prevent excessive risk taking by individual financial institutions.
- The full effects of macroprudential tools are still not well understood.
- Strong policy coordination is essential so that policies reinforce each other and do not work against each other.
- Financial stability committees have been established in many countries to ensure coordination and information sharing; these committees must be tailored to individual country circumstances.
- There was broad support for giving a key role to the central bank in such committees.
Sharing experiences and next steps
- Conference participants noted the Fund is uniquely positioned to draw on the experiences of all its members and to lead research and analysis on macroprudential policies.
- The IMF will continue to help member countries design macroprudential policy frameworks.
- Emphasis on learning-by-doing: macroprudential policy design remains a work in progress and instruments should be specific enough and based on clear rules that allow for adjustments during the business cycle.
- Regional approaches (for example, in Latin America) are being assessed.
Key takeaways
- Macroprudential policy has become an important part of the overall policy toolkit for financial stability.
- There is no “one size fits all” institutional design for macroprudential policy.
- Coordination across macroeconomic, microprudential, and macroprudential policies is critical.
- Careful implementation can make macroprudential policy a cornerstone of financial stability policy.
Source: “Macro…, what?!” The New Buzz on Financial Stability — José Viñals, Nicolás Eyzaguirre; March 23, 2012.
Content in this bundle
- Wp11159
- Executive Summary
- wp11250 - References
