The Financial Stability Board (FSB), the Bank for International Settlements (BIS) and the International Monetary Fund (IMF) have published a report on elements of effective macro-prudential policies. The document, which responds to a G20 request, takes stock of the international experience since the financial crisis in developing and implementing macro-prudential policies and will be presented to the G20 leaders’ summit in Hangzhou.
Macro-prudential policy is defined in the report as the use of primarily prudential tools to limit systemic risk. Section 1 of the report discusses this definition, objectives and scope of macro-prudential policy. Section 2 covers institutional arrangements, including mandates and governance, powers, and arrangements for domestic cooperation. Section III reviews operational considerations, such as the selection of policy tools and how they are employed. Section 4 looks into issues related to international consistency of macro-prudential policy.
The report highlights a number of elements that have been found useful for macro-prudential policy making. These include:
- a clear mandate that forms the basis for assigning responsibility for taking macro-prudential policy decisions;
- adequate institutional foundations for macro-prudential policy frameworks. Many of the observed designs give the main mandate to an influential body with a broad view of the entire financial system;
- well-defined objectives and powers that can foster the ability and willingness to act;
- transparency and accountability mechanisms to establish legitimacy and create commitment to take action;
- measures to promote cooperation and information-sharing between domestic authorities;
- a comprehensive framework for analysing and monitoring systemic risk as well as efforts to close information gaps;
- a broad range of policy tools to address systemic risk over time and from across the financial system; and
- the ability to calibrate policy responses to risks, including by considering the costs and benefits, addressing any leakages, and evaluating responses. In financially integrated economies, this includes assessing potential cross-border effects.
The report also includes some data on the use of macro-prudential tools, illustrative examples of institutional models for macro-prudential policymaking and a brief summary of some of the empirical literature on the effectiveness of macro-prudential tools.
View FSB, BIS and IMF report on elements of effective macro-prudential policies, 31 August 2016