scholarly journals MACRO-PRUDENTIAL POLICY: ESSENCE AND MEANING

2018 ◽  
pp. 148-152
Author(s):  
ELISO BERIDZE
Keyword(s):  
Financial Stability ◽  
Financial Sector ◽  
Macroprudential Policy ◽  
Market Participants ◽  
Exogenous Shocks ◽  
Systemic Risks ◽  
Banking Institutions ◽  
Policy Risk ◽  
Fiscal And Monetary Policy ◽  
Prudential Policy

Macro-prudential policy implies monitoring, evaluation and carrying out such a supervisory policy of financial stability which will be aimed at eradicating systemic risks and neutralizing pro-cyclic nature of the financial sector (growing to the cycle direction, pro-cyclical). To do this, it is necessary to carry out the supervisory policy: risk assessment; analysis of the activities of banking institutions and preparation of recommendations. Systemic risks include: exogenous shocks (economic fall, external shock, etc.), the second, so-called “contagious shocks” (contagion) that are due to the high integration of the financial sector internationally; the third category is the accumulation of financial imbalance that is the risk of endogenous nature and is often collected by the support of market participants. Against the background of the global crisis, Lehman Brothers’ bankruptcy in September 2009 clearly demonstrated those negative externalities which are linked to the bankruptcy of the systemic bank globally. Consequently, the macroprudential policy aims to reduce the probability of system banks’ bankruptcy and in case of bankruptcy to limit the system’s adverse effect. However, it is important to adequately implement the countercyclical fiscal and monetary policy.

scholarly journals Fiscal-Monetary-Financial Stability Interactions in a Data-Rich Environment

2018 ◽  
Vol 18 (3) ◽  
pp. 195-224 ◽  
Author(s):  
Martin Hodula ◽  
Lukáš Pfeifer
Keyword(s):  
Monetary Policy ◽  
Systemic Risk ◽  
Financial Stability ◽  
House Prices ◽  
Empirical Support ◽  
Financial Sector ◽  
Economic Policies ◽  
Real Economy ◽  
Monetary Policies ◽  
Fiscal And Monetary Policy

Abstract In this paper, we shed some light on the mutual interplay of economic policy and the financial stability objective. We contribute to the intense discussion regarding the influence of fiscal and monetary policy measures on the real economy and the financial sector. We apply a factor-augmented vector autoregression model to Czech macroeconomic data and model the policy interactions in a data-rich environment. Our findings can be summarized in three main points: First, loose economic policies (especially monetary policy) may translate into a more stable financial sector, albeit only in the short term. In the medium term, an expansion-focused mix of monetary and fiscal policy may contribute to systemic risk accumulation, by substantially increasing credit dynamics and house prices. Second, we find that fiscal and monetary policy impact the financial sector in differential magnitudes and time horizons. And third, we confirm that systemic risk materialization might cause significant output losses and deterioration of public finances, trigger deflationary pressures, and increase the debt service ratio. Overall, our findings provide some empirical support for countercyclical fiscal and monetary policies.

scholarly journals Financial Stability Indicators – The Case of Croatia

2016 ◽  
Vol 5 (1) ◽  
pp. 113-140 ◽  
Author(s):  
Mirna Dumičić
Keyword(s):  
Principal Component Analysis ◽  
Systemic Risk ◽  
Financial Stability ◽  
Principal Component ◽  
Small Open Economies ◽  
Macroprudential Policy ◽  
Policy Makers ◽  
The Public ◽  
Systemic Risks ◽  
Accumulation Index

Abstract This paper considers financial stability through the processes of accumulation and materialisation of systemic risks. To this end, the method of principal component analysis on the example of Croatia has been used to construct two composite indicators – a systemic risk accumulation index and an index reflecting the consequences of systemic risk materialisation. In the construction of the indices, the features and risks specific to small open economies were considered. Such an approach to systemic risk analysis facilitates the monitoring and understanding of the degree of financial stability and communication of macroprudential policy makers with the public.

Gulf Cooperation Council (GCC)—Oil Prices, Financial Stability, and the Use of Countercyclical Macroprudential Policies in the GCC

Policy Papers ◽  
2015 ◽  
Vol 15 (62) ◽  
Author(s):  
Keyword(s):  
Financial Services ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Financial Sector ◽  
Oil Price ◽  
Loan Loss ◽  
Financial Cycle ◽  
Macroprudential Policies ◽  
Systemic Risks ◽  
Wide Range

Economic and financial developments in the GCC economies are interwoven with oil price movements. GCC economies are highly dependent on oil and gas exports. Oil price upturns lead to higher oil revenues, stronger fiscal and external positions, and higher government spending. This boosts corporate profitability and equity prices and strengthens bank balance sheets, but can also lead to the buildup of systemic vulnerabilities in the financial sector. Banks in the GCC are well-capitalized, liquid, and profitable at present, and well-positioned to manage structural systemic risks. However, oil-macro-financial linkages mean that asset quality and liquidity in the financial system may deteriorate in a low oil price environment and financial sector stress may emerge. The scope for amplification of oil price shocks through the financial sector suggests a role for a countercyclical approach to macroprudential policies. Countercyclical macroprudential policy can prove useful to reduce the buildup of systemic risks in the financial sector during upswings, and to cushion against disruption to financial services during periods of financial sector stress. The GCC countries have considerable experience with implementing a wide range of macroprudential policies, but these policies have not generally been adjusted through the cycle. GCC central banks implemented several macroprudential measures before the global financial crisis and have continued to enhance their macroprudential frameworks and toolkits to limit systemic financial sector risks. Although there is some evidence of macroprudential tools being adjusted in a countercyclical way, most of the tools have not been adjusted over the financial cycle. Further enhancements to the GCC macroprudential framework are needed to support the countercyclical use of these policies. A comprehensive and established framework, supported by strong institutional capacity, is essential for countercyclical macroprudential policies. This framework should provide clear assignment of responsibilities and guidance on how policies will be implemented to maintain financial stability and manage systemic risks over the financial cycle. Addressing data gaps and the further development of reliable early warning indicators in signaling potential systemic stress are needed to help guide the countercyclical use of a broad set of macroprudential policies. Expanding the countercyclical policy toolkit and its coverage can help address emerging financial sector risks. The implementation of countercyclical capital buffers and dynamic loan loss provisions could boost resilience in line with systemic risks faced in GCC economies. At the same time, using existing macroprudential policies countercyclically would prove useful to address emerging financial sector risks in a more targeted way. Expanding the coverage of macroprudential tools to nonbanks can help boost effectiveness by reducing leakages.

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 BANKING CONSOLIDATION PROCESS AND IMPACT TO FINANCIAL STABILITY

2010 ◽  
Vol 2 (2) ◽  
pp. 62-68
Author(s):  
Lina Novickytė
Keyword(s):  
Financial Stability ◽  
Economies Of Scale ◽  
Negative Impact ◽  
Financial Sector ◽  
Financial Intermediaries ◽  
Stability Studies ◽  
Consolidation Process ◽  
Market Participants ◽  
Efficient Management ◽  
Market Consolidation

Globalization promotes financial market participants to seek opportunities for efficient management of available resources and maximize benefits. In recent years, took place in the con­solidation process is mainly due to both macroeconomic and microeconomic factors. Most often leads to consolidation pro­cesses in order to gain economies of scale, market power and X-efficiency. Market consolidation and financial sector stability studies have shown that concentrated financial intermediaries market have a negative impact on the region/country/sector financial stability. In the future countries and regions (EU) must find ways and means to smoothly manage the inevitable process of globalization under the supervision of future merger transac­tions in order to guarantee the efficiency and sustainability of the financial sector.

scholarly journals Macroprudential policy and financial stability, role and tools

2020 ◽  
Vol 4 (4) ◽  
pp. 45-54
Author(s):  
Mehdi Bouchetara ◽  
Abdelkader Nassour ◽  
Sidi Eyih
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Full Employment ◽  
Financial System ◽  
Policy Instruments ◽  
Banking Crises ◽  
Real Economy ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
The Impact

The aim of macroprudential policy is to ensure financial stability by avoiding the outbreak of banking crises, which have a dangerous effect on the economy. Is macroprudential policy effective in the face of banking crises and systemic risks? The macroprudential policy has received significant interest from policy-makers and researchers. A few developing countries were using macroprudential policy tools well before the 2008 financial crisis, but significant progress has been made thereafter in both emerging and industrialized economies to put in place specific institutional settings for macroprudential policy. The fundamental objective of macroprudential policy is to maintain the stability of the financial system by making it more resistant and preventing the risk build-up. The objective of this paper is to analyze the important role of macroprudential policy in ensuring overall financial stability. Since the financial crisis of 2008, macroprudential policy has been increasingly used across economies. These measures aim at smoothing financial cycles and thereby mitigating the impact on the real economy, thereby allowing monetary policy to focus on price stability and promote growth and full employment. Macroprudential policy instruments fall into two categories, depending on their purpose, namely, to prevent procyclicality or to enhance the resilience and soundness of the financial system against shocks. The first category of instruments is used to stop bubbles from forming and smooth cycles, i.e. to force the debt-equity of economic operators on an income basis to prevent unsustainable credit bubbles, or to require dynamic loss provisioning rules. The second category of macro-prudential policy is to improve the resilience to shocks, such as capital surcharges for systemic institutions or the requirement to hold liquid assets to cope with market panics, and to make the financial system less complex. Keywords: macroprudential policy, financial stability, tools and measures, systemic risks.

scholarly journals CENTRAL BANK POLICY MIX: KEY CONCEPTS AND INDONESIA’S EXPERIENCE

2016 ◽  
Vol 18 (4) ◽  
pp. 379-408
Author(s):  
Perry Warjiyo
Keyword(s):  
Central Bank ◽  
Capital Flows ◽  
Financial Stability ◽  
Financial System ◽  
System Stability ◽  
Decision Making Process ◽  
Policy Mix ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
Key Concepts

The global crisis brings about renewed reforms on central bank policy. First, in addition to the traditional mandate of price stability, there are strong supports for additional mandate of the central bank to promote financial system stability. Second, macroprudential policy is needed to address procyclicality and build-up systemic risks in the macro-financial linkages of financial system that in most cases precede and deepen financial crisis. Third, monetary and financial stability are also prone to volatility of capital flows, especially for the emerging countries, and thus there is a need to manage them. The challenge is how to mix the policies of monetary, macroprudential, and capital flows management to meet the renewed mandate of central bank on monetary and financial stability. This paper reviews theoretical underpinnings and provides key concepts to address the issues. We show that central bank policy mix is both conceptually coherent and practically implementable. We provide a concrete recommendation with a reference from Indonesia’s experience since 2010. We also raise a number of challenges from practical point of views, especially relating to decision making process, forecasting model, and communication, for the success of the policy mix.

scholarly journals Luxembourg

2017 ◽  
Vol 17 (256) ◽  
Author(s):  
Keyword(s):  
Financial System ◽  
Institutional Arrangement ◽  
Financial Sector ◽  
Technical Note ◽  
Investment Fund ◽  
Macroprudential Policy ◽  
Assessment Program ◽  
Systemic Risks ◽  
Fund Industry ◽  
Made In

This Technical Note discusses the findings and recommendations made in the 2017 Financial Sector Assessment Program for Luxembourg in areas of macroprudential framework and policies. Luxembourg has a large financial system that contributes a significant share of GDP and is globally interconnected. The institutional arrangement is broadly appropriate for effective macroprudential policy, but some areas should be strengthened. The monitoring and analysis of systemic risks by the Banque Centrale du Luxembourg is appropriate and performed on a timely basis. The authorities are encouraged to continue to increase efforts to monitor risks related to the investment fund industry.

scholarly journals Stress-testing as a method of macroprudential policy and information security in banking sector

2019 ◽  
Vol 65 ◽  
pp. 06004
Author(s):  
Olena Berezina ◽  
Iryna Honcharenko ◽  
Lesya Berezhna ◽  
Valentina Kunchenko-Kharchenko
Keyword(s):  
Integrated Assessment ◽  
Financial Stability ◽  
Stress Testing ◽  
Banking Sector ◽  
Banking System ◽  
Capital Adequacy ◽  
Quantitative Risk Assessment ◽  
Macroprudential Policy ◽  
Prudential Policy ◽  
Integral Indicator

The article contains an overview of the essence, history, components, scenarios, methodology and results of stress testing of the Ukrainian banking system. The purpose of this paper is to explore and analyze existing approaches to stress testing as a method of macro-prudential policy of the Central Bank, to determine the results of quantitative risk assessment and financial stability of banks and their readiness to have sufficient capital to cover losses in various macroeconomic scenarios, as well as to develop a model of integrated assessment and rating of banks based on the results of stress testing. In order to summarize the results of the study, a model of integrated assessment was developed and a rating of banks was built based on the analysis of their financial stability, capital adequacy and readiness to withstand the crisis. To solve the problem of qualitative analysis of the stress-testing results in terms of a significant number of indicators and calculations a simulation of the integral indicator is proposed which helps information users group the data, obtain a generalized assessment and form a rating of banks according to the financial stability reserve.

scholarly journals ANALYSIS OF INSTRUMENTAL SECURITY OF MACROPRUDENTIAL POLICY IN UKRAINE

2020 ◽  
pp. 83-90
Author(s):  
Makarenko Mykhailo ◽  
Yana Smolova
Keyword(s):  
Financial Stability ◽  
Banking System ◽  
Bank Lending ◽  
Capital Requirements ◽  
Macroprudential Policy ◽  
Systemic Risks ◽  
Regulatory Instruments ◽  
Potential Benefits ◽  
Systemic Crises ◽  
Near Future

Introduction. The issue of protecting the national economy from systemic risks is burning nowadays. Over the past two decades, systemic crises that periodically occur in financial markets have caused significant losses to the economies of many countries. And Ukraine is not an exception. Its losses from the last crisis of 2014-2015 amounted to about 40% of GDP. Ithas reflected in reduction of economic growth and bank lending. As a result, the function of ensuring financial stability has been included in the NBU's mandate. In the article the main objectives of macroprudential policy for the implementation of regulatory instruments have been identified. The most effective macroprudential instruments used in foreign practice have been studied.The degree of its implementation and efficiency in Ukraine has been analyzed. The potential benefits of macroprudential tools that are going to be emplementedin the near future have been considered. Purpose. The purpose of the article is to study theoretical and practical aspects of macroprudential instruments implementation inUkraine. Method (methodology). In the article the general and special research methods were used, in particular, logical generalization – in characterizing macroprudential policy, identifying its goals and tools, comparative analysis – in comparing thepractice of macroprudential instruments in Ukraine and abroad, determining the benefits of tools, systematization – while grouping the tools according to certain criteria. Results. Based on theresults of the study, conclusions and recommendations were formulated. In particular, the refend to accelerate the process of implementing macroprudential instruments, focusing on the tools that NBU already has in its arsenal, was considered. Possible difficulties for the banking system caused by capital requirements increase have been identified.

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