makroprudential

Macroprudential policy refers to a set of regulatory and supervisory measures designed to curb systemic risk and promote financial stability by addressing risks to the financial system as a whole, rather than focusing solely on the soundness of individual institutions. It considers the interconnectedness of banks, markets, households, and firms, and the amplification channels through which shocks propagate.

Its aim is to dampen procyclical credit growth, asset price booms, liquidity squeezes, and other spillovers that can threaten financial stability. Macroprudential policy complements microprudential supervision, which targets the safety and soundness of individual institutions. Together they seek to reduce the likelihood and severity of financial crises by monitoring the financial cycle and systemic importance, with tools that are often countercyclical—tightening when systemic risk rises and loosening when risks subside.

Common tools include capital-based instruments such as the countercyclical capital buffer, sectoral capital requirements, and adjustments to leverage ratios; liquidity tools like reserves and liquidity coverage; and structural measures such as debt-servicing limits, loan-to-value and loan-to-income caps, and dynamic provisions. Stress testing, scenario analysis, and macroprudential impact assessments are used to identify vulnerabilities and potential spillovers.

Governance varies by country but typically involves central banks or financial authorities in coordination with other agencies and bodies focused on financial stability. International frameworks from bodies like the Basel Committee provide guidance, though implementation differs. Critics note concerns about calibration, potential growth costs, data requirements, and cross-border spillovers.