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Macroprudential Policy Essay

879 words - 4 pages

Table of Contents
I. Introduction
II. History
III. Current definition
IV. The need for macroprudential policy as a complement to microprudential policy
V. Objectives
VI. Tools
VII. Implementation
VIII. Interaction with other policies
IX. Future research topics
X. Conclusion
1. Introduction
Economists throughout the world have agreed that there is a need of regulation of the financial system in its entirety. This is because, as the financial crisis from 2008 has shown, the micro orientated regulation measures do not suffice. They neglect the build-up of systemic risk and the interconnections within the financial system, which have shown to lead to the amplification of the effects of shocks. ...view middle of the document...

As a conclusion, the reader will find some of the puzzles that are yet to be solved by economists and a brief summary of the main points.
2. History
In recent years the term “macroprudential” is becoming a buzzword throughout the economic world. However, this was not the case before the financial crisis of 2008. Although the term was mentioned several times in the past (starting 1978) it failed to make an impact. (Clement. 2010. p. 1)
The concept of a connection between macroeconomic concerns and prudential regulation was first described in anECSC report in July 1978. However, the term “macroprudential” was first used a year later at a meeting of the Cooke Committee, where the main topic was the potential collection ofdata on maturity transformation in international bank lending. (Clement. 2010. p. 2)
The second occasion on which the term was used was in an unpublished document put together bythe Bank of England on October 9th 1979. It was used to point out some of the shortcomings of microprudential policy and to contrast it to a set of macroprudential regulations. (Clement. 2010. pp. 2-3)
The term was afterwards largely forgotten, until it appeared for the first time in a public document in 1986. It was used by the ECSC in its report on innovations in the banking sector as a policy that supports the stability of the financial system as a whole and the payments mechanism. (BIS. 1986. p. 2 according to Clement. 2010. p. 4)
This was followed by another 6 year period of obscurity up until the 1992 ECSC report discussing the developments in the relations between international banks (Promisel Report. BIS. 1992. according to Clement. 2010. p. 4).
A period of relatively frequent use followed and by the late 1990s records show...

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