General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
March 16, 2018

Poul Thomsen, Director of the IMF European Department spoke, at the “ECB and Its Watchers” Conference in Frankfurt, about the role of macro-prudential policies in maintaining financial stability. He highlighted that, while monetary policy is only available at the euro area-wide level, macro-prudential policies can closely target risks in specific national markets, thus contributing to reduce the heterogeneity in financial and business cycles across member states.

Mr. Thomsen pointed that macro-prudential authorities are now operational in every member state. If deemed necessary, the capital-based macro prudential tools can be “topped-up” by ECB, which also has macro-prudential responsibilities, in addition to its micro-prudential role. He opined and illustrated that "the EU macro-prudential framework would benefit from some simplification. Procedures to activate macro-prudential instruments are complex, involving many authorities at different levels." For example, a few countries—Austria, Belgium, Finland, Luxembourg and the Netherlands—were alerted by the Risk Board in November 2016 about potential overvaluation in their housing markets and about rising household indebtedness. In response, most of these countries tightened prudential or borrower-based tools. However, in case of Belgium and Finland, the activation of capital-based tools took more than six months. This indicates that, decision-making processes should be simplified to ensure that national authorities take timely action. He then informed the audience that IMF is "... developing concrete proposals in this regard."

Next, Mr. Thomsen discussed the use of macro-prudential policies to address concerns related to housing and corporate debt. With regard to corporate debt, he added that France is a recent example. In view of rising corporate debt in the country, the French macro-prudential authority is considering tightening the large exposure limit in big French banks for loans to highly indebted large nonfinancial corporations. Such measures will protect the banking sector against corporate defaults, if any. He, however, added that macro-prudential tools to target corporate credit need to be supplemented by other measures. For instance, the tax deductibility of interest payments in most corporate income tax systems, coupled with no such deductibility for equity financing, creates economic distortions and exacerbates leverage. One way to mitigate this debt bias is to provide a deduction for equity costs. Moreover, all countries have not yet legislated the borrower-based tools with harmonized definitions that are best suited to target specific risks and limit leakage. Experience at the IMF suggests that the problems that macro-prudential policy seeks to address are often caused by other real sector factors, and by “distortions” in other policy areas. He concludes that macro-prudential policies cannot be a substitute for addressing these underlying problems.


Related Link: Speech

Keywords: Europe, EU, Banking, Securities, Financial Stability, Macro-prudential Policy, IMF

Related Articles

EU Finalizes Regulation on Prudential Backstop for Bank NPEs Under CRR

Regulation (EU) 2019/630, which amends the Capital Requirements Regulation, or CRR (Regulation 575/2013), with regard to the minimum loss coverage for non-performing exposures (NPEs), has been published in the Official Journal of the European Union.

April 25, 2019 WebPage Regulatory News

FASB Issues Minor Improvements to Financial Instruments Standards

FASB issued an Accounting Standards Update (ASU No. 2019-04) that clarifies and improves areas of guidance related to the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825).

April 25, 2019 WebPage Regulatory News

APRA Grants License to New Authorized Deposit-Taking Institution

APRA announced that it has granted Judo Bank Pty Ltd a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

April 24, 2019 WebPage Regulatory News

BoE Report on Evaluation of Approach to Concurrent Stress Testing

BoE published a report on the evaluation, by the Independent Evaluation Office (IEO), of the effectiveness of the approach of BoE to concurrent stress testing.

April 24, 2019 WebPage Regulatory News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News

FDIC Specifies Submission Timeline for FFIEC 031, 041, and 051 Reports

FDIC published the financial institution letters (FIL-21-2019 and FIL-22-2019) that offer guidance on submission of Call Reports FFIEC 051, FFIEC 041, and FFIEC 031 for the first quarter of 2019.

April 19, 2019 WebPage Regulatory News

US Agencies Propose to Revise Call Reports FFIEC 031, 041, and 051

US Agencies (FDIC, FED, and OCC) proposed to revise and extend, for three years, the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

April 19, 2019 WebPage Regulatory News

US Agencies Propose to Amend Rule on Supplementary Leverage Ratio

US Agencies (FDIC, FED, and OCC) are proposing to revise the capital requirements for supplementary leverage ratio, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

April 18, 2019 WebPage Regulatory News

EIOPA Held InsurTech Roundtable on Use of Cloud Computing by Insurers

EIOPA had, on April 11, 2019, hosted its Fourth InsurTech Roundtable on the use of cloud computing by insurance undertakings.

April 17, 2019 WebPage Regulatory News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2963