April 08, 2019

ESRB published a report that presents initial considerations on the development and use of a common framework for the macro-prudential policy stance. The macro-prudential policy stance is considered in this report by assessing the balance between identified systemic risk and resilience relative to financial stability objectives, given the implemented macro-prudential policies.

The report first outlines the motivation for a framework for the macro-prudential policy stance and explains how a macro-prudential instrument is used as a policy lever by authorities for macro-prudential purposes. It then presents one potential macro-prudential stance framework that, when "operationalized," would aim to support policymakers in their assessment of risks, resilience, and implemented policies. The risk-resilience framework was chosen as the approach to the stance framework as one which fits in with the existing macro-prudential policy strategies, which could be used to take into account the many facets of macro-prudential policy and which could potentially be developed further. Next, the report focuses on the measurement of the macro-prudential stance and discusses the interactions and aggregation of various stance components, also outlining challenges related to macro-prudential policy objectives, macro-prudential instruments, and the relationship between the two. Finally, the report presents next steps and concludes that the risk-resilience framework has been considered appropriate to utilize as the foundation for the macro-prudential stance assessments. 

In the report, it has been proposed that the assessment of the macro-prudential stance and policy action is a two-tier process, with the stance assessment of implemented policy measures being separate from the assessment of costs and benefits of potential adjustments to macro-prudential policy. It is envisaged that the work on the conceptual aspects of the macro-prudential stance framework would be further developed into an operational framework over the medium term. Macro-prudential authorities could use such a framework when conducting their assessment of risk and resilience and analyzing the appropriateness of their macro-prudential responses. This would require the development of a quantitative concept that is transparent and flexible enough to allow and encourage implementation by national authorities.

The second phase of the work on the macro-prudential stance may advance the concepts of the Growth-at-Risk model, the use of stress testing, and the understanding of the aggregation of stances. In addition, as with all applications of policy, efficient and effective communication is critical to successful implementation; therefore, further efforts could be made in determining the best approach to communicating decisions made after a macro-prudential policy stance assessment. The next step to further develop the presented concepts requires cooperation among the ESRB membership and ESRB working groups. It is envisaged that the "operationalization" of the macro-prudential stance framework will have a significant positive impact on the progression and understanding of macro-prudential policy across Europe.

 

Related Link: Report (PDF)

 

Keywords: Europe, EU, Banking, Risk-Resilience Framework, Systemic Risk, Macro-Prudential Policy, Financial Stability, ESRB

Related Articles
News

US Agencies Consult on Capital Treatment of Land Development Loans

US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.

July 12, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for July 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.

July 12, 2019 WebPage Regulatory News
News

ESMA Updates Manual for European Single Electronic Format in EU

ESMA updated the reporting manual for European Single Electronic Format (ESEF).

July 12, 2019 WebPage Regulatory News
News

FED Updates Supplemental Instructions for Reporting Form FR Y-9C

FED updated the supplemental instructions for FR Y-9C reporting.

July 12, 2019 WebPage Regulatory News
News

EBA Publishes Report on Monitoring Implementation of LCR in EU

EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.

July 12, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirements to Three Australian Banks

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.

July 11, 2019 WebPage Regulatory News
News

IMF Report on 2019 Article IV Consultation on Euro Area Policies

IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.

July 11, 2019 WebPage Regulatory News
News

FSB to Survey Practices on Cyber Incident Response and Recovery

FSB launched a survey on the industry practices on cyber incident response and recovery.

July 11, 2019 WebPage Regulatory News
News

ECB Appoints New Members of Supervisory Board

The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.

July 11, 2019 WebPage Regulatory News
News

OSFI Consults on Applying Proportionality to Pillar 1 Rules in Canada

OSFI published a discussion paper seeks input on possible tailoring of the capital and liquidity requirements for small and medium-size deposit-taking institutions.

July 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3438