scholarly journals Macro-prudentiality and financial stability

2012 ◽  
Author(s):  
Cristian Ionescu
Keyword(s):  
Financial Crises ◽  
Financial Stability ◽  
Financial System ◽  
Financial Instability ◽  
Economic Policies ◽  
Prudential Regulation

Taking into consideration the fact that financial crises, as a manifestation form of the financial instability, are becoming more and more frequent, complex and severe, it is important to discuss about the macroeconomic prudentiality, in order to protect and save the economy of a country or of a region by the inherent fragility of a very developed financial system. Therefore, the paper aims to analyze the following aspects: the macro-prudential regulation (in order to a better understanding of the financial instability process), the development of the macro-prudential vision and instruments (but emphasizing the existing limits) and economic policies (in order to implement an operational macro-prudential regulation).

scholarly journals Macroprudential Policy Versus Other Economic Policies

2021 ◽  
Vol 23 (2) ◽  
pp. 33-66
Author(s):  
Eva Lorenčič ◽  
◽  
Mejra Festić ◽  
Keyword(s):  
Financial Crises ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Financial System ◽  
Policy Instruments ◽  
Economic Policies ◽  
Macroprudential Policy ◽  
Descriptive Research ◽  
The Stability ◽  
The Global Financial Crisis

After the global financial crisis of 2007, macroprudential policy instruments have gained in recognition as a crucial tool for enhancing financial stability. Monetary policy, fiscal policy, and microprudential policy operate with a different toolkit and focus on achieving goals other than the stability of the financial system as a whole. In ligh of this, a fourth policy – namely macroprudential policy – is required to mitigate and prevent shocks that could destabilize the financial system as a whole and compromise financial stability. The aim of this paper is to contrast macroprudential policy with other economic policies and explain why other economic policies are unable to attain financial stability, which in turn justifies the need for a separate macroprudential policy, the ultimate goal whereof is precisely financial stability of the financial system as a whole. Our research results based on the descriptive research method indicate that, in order to prevent future financial crises, it is indispensable to combine both the microprudential and the macroprudential approach to financial stability. This is because the causes of the crises are often such that they cannot be prevented or mitigated by relying only on microprudential or only on macroprudential policy instruments.

An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime

2018 ◽  
Vol 78 (2) ◽  
pp. 319-357 ◽  
Author(s):  
Michael D. Bordo
Keyword(s):  
Monetary Policy ◽  
Financial Crises ◽  
Financial Stability ◽  
Historical Perspective ◽  
Asset Price ◽  
Financial Instability ◽  
Historical Evidence ◽  
Policy Regime ◽  
Extreme Form ◽  
Credit Booms

This article surveys the co-evolution of monetary policy and financial stability for a number of countries from 1880 to the present. Historical evidence on the incidence, costs, and determinants of financial crises (the most extreme form of financial instability), combined with narratives on some famous financial crises, suggests that financial crises have many causes, including credit-driven asset price booms, which have become more prevalent in recent decades, but in general financial crises are very heterogeneous and hard to categorize. Moreover, evidence shows that the association across the country sample between credit booms, asset price booms, and serious financial crises is quite weak.

scholarly journals Importance of Macroprudential Policy Implementation for Safeguarding Financial Stability

2016 ◽  
Vol 5 (3) ◽  
pp. 79-98 ◽  
Author(s):  
Milena Vučinić
Keyword(s):  
Policy Implementation ◽  
Financial Stability ◽  
Financial System ◽  
Precise Determination ◽  
Institutional Framework ◽  
System Stability ◽  
Economic Policies ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
Potential Risks

Abstract The crisis pointed to the necessity for strong and stable financial system resistant to potential risks and shocks. Macroprudential policy is used to identify, monitor and asses systemic risks to financial stability. Therefore, it is very important to create effective and efficient macroprudential policy. To achieve this, it is crucial to create a strong institutional framework. This paper deals with the importance of macroprudential policy for financial system stability. The first part of the paper explains the macroprudential policy and its connection with other economic policies. The second part refers to the necessity of building strong institutional framework and the importance of providing clear responsibilities for macroprudential policy, as long as precise determination of responsibilities is very suggested and important for further functioning and policy implementation. Responsibilities for macro-prudential policy and macroprudential supervision defers among countries.

scholarly journals FINANCIAL INSTABILITY HYPOTHESIS (FIH) OF MINSKY: CONTEXTUALIZING THE ROLES OF ISLAMIC COMMERCIAL AND SOCIAL FINANCE

2017 ◽  
Vol 2 (2) ◽  
pp. 145-172
Author(s):  
Ugi Suharto
Keyword(s):  
Financial Stability ◽  
Descriptive Analysis ◽  
Financial System ◽  
Point Of View ◽  
Theory And Practice ◽  
Islamic Finance ◽  
Social Aspect ◽  
Financial Instability ◽  
The Stability ◽  
Finance Theory

The main subject of this paper is to discuss some issues in Minsky’s Financial Instability Hypothesis (FIH) and relate them with Islamic finance position in enhancing the stability of financial system. The methodology used in the paper is descriptive analysis. It describes a particular concept, namely the financial instability hypothesis and then analyses, applies and compares that concept with other concept, i.e. the Islamic finance concept. It is shown in the paper that Islamic finance, both in its commercial and social aspect, can play its role in stabilizing financial system. The significant contribution of the paper is by bringing together the hypothesis of Minsky with Islamic finance theory and practice. It should be stated here, however, that among the limitations of the paper is that the reference on Minsky’s point of view is mostly based on his brief article entitled “The Financial Instability Hypothesis” without referring to his vast writings on various topics directly or indirectly related to his notion of Financial Instability Hypothesis. Keywords:  Financial stability, Islamic finance, Financial crisis, Deregulation, Riba, GhararJEL Classification: A12, E44, E58, G18, G21

The bridge between macro and micro banking regulation

2017 ◽  
Vol 44 (2) ◽  
pp. 214-225 ◽  
Author(s):  
Claudio Oliveira De Moraes ◽  
Helder Ferreira de Mendonça
Keyword(s):  
Central Bank ◽  
Financial Stability ◽  
Financial Regulation ◽  
Financial System ◽  
Banking Regulation ◽  
Bank Failures ◽  
Financial Instability ◽  
Financial Flows ◽  
Content Type ◽  
Forward Looking

Purpose The purpose of this paper is to discuss more efficient mechanisms of regulation in the financial system. Design/methodology/approach The authors developed a theoretical two-period model of financial flows (FFs) that considers households, banks, and a social planner. Findings It is important to highlight that different from other studies that do not distinguish between financial crisis and financial instability, the authors assume financial instability does not mean crisis, but represents a deviation in the behavior of the aggregate financial intermediation and in the financial operations of each bank from the equilibrium. Practical implications The practical implication of the model is the proposition of an efficient policy for financial stability based on forward-looking financial regulations. Social implications An important result is that bank failures occur when banks do not maintain sufficient resources to support the liquidity constraint from the interbank market. Another result is that the central bank reacts, via exchange of reserves with the market, to financial instability. This behavior on the part of the central bank is inefficient because the banks will assume that in the case of failure they will be “saved;” thus it creates an adverse incentive (moral hazard) that can amplify the risk over the entire financial system. Originality/value The originality of the model is the proposition of an efficient policy for financial stability based on a forward-looking financial regulation. In this strategy the regulator acts in advance (ex ante) to minimize the mismatch of FFs in relation to the flow balance. This manner of acting is a counterpoint to the financial regulation based on capital requirement.

Macroprudential Policy - An Organizing Framework

Policy Papers ◽  
2011 ◽  
Vol 11 (17) ◽  
Author(s):  
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial Stability ◽  
Macroprudential Policy ◽  
Macroeconomic Policies ◽  
Prudential Regulation ◽  
Clear Separation ◽  
The Past ◽  
Regulation And Supervision ◽  
Global Nature

Macroprudential policy is a complement to microprudential policy and it interacts with other types of public policy that have an impact on systemic financial stability. Indeed, prudential regulation, as carried out in the past, also had some macroprudential aspects, and the recent crisis has reinforced this focus; hence, a clear separation between “micro” and “macro” prudential, if useful conceptually, is difficult to delineate in practice. Moreover, no matter how different policy mandates are structured, financial stability tends to be a common responsibility, reflecting the far reaching consequences of financial crises. This calls for coordination across policies, to ensure that systemic risk is comprehensively addressed. Equally important, macroprudential policy is no substitute for sound policies more broadly, including, in particular, strong prudential regulation and supervision, and sound macroeconomic policies. Operational independence in other policy areas, including monetary and microprudential policy, should not be undermined in the name of macroprudential policy. Finally, given the global nature of the financial system, the multilateral aspects of macroprudential policy will need to be fully considered—an important aspect that is only touched upon in this paper.

scholarly journals Macroprudential Regulation — The Missing Policy Pillar

2010 ◽  
Vol 211 ◽  
pp. R3-R16 ◽  
Author(s):  
E. Philip Davis ◽  
Dilruba Karim
Keyword(s):  
Financial Crises ◽  
Financial System ◽  
Collective Behaviour ◽  
Financial Instability ◽  
Macroprudential Policy ◽  
Related Research ◽  
Macroprudential Regulation ◽  
Design And Implementation ◽  
Aggregate Risk ◽  
Made In

The recent Sub-Prime crisis has prompted a close focus on the causes of financial instability as well as the issue of whether it can be prevented. There is a growing realisation that the Sub-Prime crisis, although having some important unique features, also had a number of generic aspects in common with earlier financial crises, of which a large number have been seen in recent decades. Accordingly, the crisis has prompted a debate about macroprudential policy, which focuses on the financial system as a whole, treating aggregate risk as endogenous with regard to collective behaviour of institutions. Our survey shows that a great deal of progress has been made in ‘macroprudential surveillance’ and related research on causes and predictors of crises. Much less progress has been made in ‘macroprudential regulation’, the design and implementation of policies to prevent or mitigate threatened crises.

scholarly journals Analyzing the Impact of Derivatives on the Emerging Markets Financial Stability

2020 ◽  
Vol 16 (28) ◽  
Author(s):  
Lela Scholer-Iordanashvili
Keyword(s):  
Emerging Markets ◽  
Interest Rates ◽  
Financial Crises ◽  
Financial Stability ◽  
Financial System ◽  
Recent Decade ◽  
Negative Influence ◽  
International Financial Crises ◽  
The Stability ◽  
The Impact

In recent decade, volatility of stocks and interest rates, together with the globalization of capital markets, increased the demand on financial instruments with the purpose of distribution of risks. The estimation of the role of financial derivatives instruments is very important for the stability of international financial system. The impact of derivatives upon International Financial Crises is an issue that is still dividing academics and practitioners. This paper focuses on analyzing the roles of derivatives in the financial crises. Within the framework of this research, three (3) emerging countries were studied for 1997-2010 quarterly. OLS regressive equation was used for empirical tests. The model includes the following variables: crisis index (dependent variable) and independent variables which include: the Ratio of the Current Account to GDP, the Ratio of the Domestic Credits on Private Sector to GDP, and the Ratio of the total notional amounts outstanding of the exchange traded derivatives to Foreign Exchange Reserves. Empirical analysis shows that the influence of derivatives over financial stability is not unilateral, and it depends on the characteristics of the financial system of the country. The study conducted on example of emerging markets, particularly Argentina, Russia and Brazil, revealed negative influence of derivatives on the financial system.

Macroprudential Policy Instruments of Central Banks

2012 ◽  
pp. 32-47
Author(s):  
S. Andryushin ◽  
V. Kuznetsova
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
Policy Instruments ◽  
Central Banks ◽  
Macroprudential Policy ◽  
Policy Studies ◽  
The Future ◽  
Financial Cycles

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

The Threats of Ukraine Financial Security: Identification and Systemization

2019 ◽  
pp. 73-80
Author(s):  
Oleksandra Maslii ◽  
Andrii Maksymenko ◽  
Svitlana Onyshchenko
Keyword(s):  
Financial Stability ◽  
System Development ◽  
Financial System ◽  
Economic Security ◽  
The State ◽  
Financial Security ◽  
Monitoring And Control ◽  
Development Indicators ◽  
Security Indicators ◽  
And Control

Place of monitoring and control of risks of financial stability of the state in the system of ensuring financial security of the state was substantiated. Methods of identifying threats to Ukraine's financial security through the current and strategic analysis of financial system development indicators were considered. Tendencies of economic development of Ukraine in the context of revealing sources of threats to financial stability of the state were analyzed. Dynamic analysis of the actual values of the financial security indicators of Ukraine as a whole and its separate components had been carried out. Threats to Ukraine's financial security were identified based on comparative and trend analysis. Reasons for the critical state of debt, banking and monetary security in the financial structure and the preconditions for the emergence of systemic threats had been investigated. Systematization of risks and threats to Ukraine's financial security by its components had been carried out. Influence of systemic threats in the financial sphere on the economic security of the state was generalized. International experience of monitoring financial stability of the state was analyzed. Additional risks to the national financial system are associated with the globalization and digitization of the state financial system that are not taken into account by valid methodological recommendations for calculating the level of economic security of Ukraine were highlighted.

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