March 14, 2018

At the ECB and Its Watchers XIX Conference in Frankfurt, the ECB Vice President Vítor Constâncio spoke about using macro-prudential policy to address financial stability risks in the euro area. He believes that monetary policy and macro-prudential policy "are different and should remain separate," and that "monetary policy should not respond to financial stability concerns." He further opines that macro-prudential policy is "the most effective tool for safeguarding financial stability."

The ECB Vice President emphasizes that there are synergies and trade-offs between monetary and macro-prudential policies. In the context of euro area, the relative effectiveness of macro-prudential policy to tackle the build-up of financial stability risks is even more pronounced because, in a monetary union, a single monetary policy is not well-suited to deal with financial imbalances emerging at the national level. Such imbalances can be better tackled through targeted national macro-prudential measures. "The cross-country and cross-sector heterogeneity of localized vulnerabilities underlines the advantage of macro-prudential policy in containing financial stability risks, namely the possibility to activate policy instruments in a targeted manner." He then outlined the capital- and borrower-based macro-prudential instruments implemented by the national authorities, highlighting that these measures "do not reach beyond the banking sector" to cover credit intermediation that is conducted by non-bank financial institutions. "Europe should thus expand the toolkit to cover maturity mismatch and leverage also in the non-banking sector. The ongoing review of the macro-prudential framework in the EU provides an excellent opportunity to make these necessary tools available to macro-prudential authorities on a common legal basis."

He concludes that, "The institutional setup in the euro area, with distinct roles assigned to monetary policy for the maintenance of price stability and to macro-prudential policy for safeguarding financial stability, is well-placed to achieve both of these objectives." He also emphasized that the legal macro-prudential policy framework in Europe needs to be enhanced by introducing new instruments, including for non-banks, and by allowing member states and ECB more flexibility to activate those instruments. Additionally, he believes that the forthcoming review of the Capital Requirements Directive and Regulation (CRD IV/CRR) will not deliver the comprehensive reform of the macro-prudential framework, which would be important to "continue safeguarding financial stability in the euro area."


Related Link: Speech

Keywords: Europe, EU, Macro-prudential Policy, Financial Stability, CRD IV, CRR, ECB

Related Articles
News

APRA Updates Guidance on Managing Information Security Risks

APRA released an updated Prudential Practice Guide CPG 234 on managing information security risks, including cyber-crime.

June 25, 2019 WebPage Regulatory News
News

FSB Chair Reports to G20 on Implementation of Financial Reforms

FSB published the letter to G20 Leaders and the opening statement from an FSB briefing by the FSB Chair Randal K. Quarles.

June 25, 2019 WebPage Regulatory News
News

FSB Summarizes Progress in Implementation of G20 Regulatory Reforms

FSB published a summary progress report on implementation of the G20 financial regulatory reforms.

June 25, 2019 WebPage Regulatory News
News

EBA Issues 2020 Stress Test Methodology and Templates for Discussion

EBA published the 2020 EU-wide stress test draft methodology, templates, and template guidance, for discussion with the industry.

June 25, 2019 WebPage Regulatory News
News

SRB Updates MREL Policy to Reflect Changes in CRR 2

SRB updated its policy on minimum requirement for own funds and eligible liabilities (MREL) as a result of the revisions in the recent Banking Package.

June 25, 2019 WebPage Regulatory News
News

OSFI Updates Manual of Reporting Forms and Instructions for Insurers

OSFI issued its annual update for 2019 to the manual of financial reporting forms and instructions for property and casualty (P&C) insurance companies.

June 25, 2019 WebPage Regulatory News
News

PRA Consults on PRA110 Reporting Frequency Threshold

PRA proposed (CP14/19) to amend the reporting frequency of PRA110 reporting template (PRA110) when a firm is in stress.

June 25, 2019 WebPage Regulatory News
News

IMF Releases Report on 2019 Article IV Consultation with United States

IMF published its staff report in the context of the 2019 Article IV consultation with the United States.

June 24, 2019 WebPage Regulatory News
News

FCA and US Agencies on Addressing Issues in Credit Derivatives Market

U.S. SEC Chairman Jay Clayton, U.S. CFTC Chairman J. Christopher Giancarlo, and UK FCA Chief Executive Andrew Bailey issued a joint statement announcing plans to address concerns regarding opportunistic strategies in the credit derivatives markets.

June 24, 2019 WebPage Regulatory News
News

BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms in the financial services sector.

June 23, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3315