ECB Publishes Paper on Its Macro-Prudential Policy Framework

The paper discusses the macro-prudential policy analysis at ECB as well as the selected analytical tools supporting financial stability surveillance and assessment work. The tools are grouped into three broad areas:

• Methods to gauge the state of financial instability or prospects of near-term systemic stress
• Measures to capture the build-up of systemic risk focused on country-level financial cycle measurement and early warning methods
• ECB stress testing framework for macro-prudential purposes

The analytical strengthening has provided ECB with systemic risk identification and assessment tools appropriate for supporting macro-prudential policy calibration, such as the countercyclical capital buffer to address cyclical risks or capital buffers for systemic institutions to address structural risks. While the framework has come a long way since its infancy, there are still a number of challenges and open issues; therefore, work continues on tackling boundary issues with regard to a growing non-bank sector and the associated market-based finance.

Related Link: Occasional Paper (PDF)

Keywords: Europe, EU, Banking, Macro-Prudential Policy, SSM, Systemic Risk, Stress Testing, CCyB, ECB