Noyer (Banque de France); Macroprudential policy – from theory to implementation

From the Introduction:

The crisis has demonstrated the need to renew our approach to financial system regulation and notably to complement it with a macroprudential perspective.
There is no single definition of what constitutes “macroprudential” policy. There is, however, some consensus over its broad outlines. First, it involves adding a macroeconomic perspective to the supervision of the financial system, which up till now has only really been addressed from a “micro” standpoint. As the crisis has shown, financial stability does not depend solely on the soundness of the individual components that make up the financial system; it also depends on complex interactions
and interdependencies between these components.

Moreover, the term “macro” refers to the interactions between the real world and the financial world, to the extent that a risk only becomes “systemic” once the imbalances or shocks affecting the financial system pose a significant threat to economic activity. The second characteristic of macroprudential policy is that it is preventive.  Its aim is precisely to prevent the formation of financial imbalances, procyclical phenomena or systemic risks by limiting excessive growth in credit and in economic agents’ debt levels, and increasing the shock‑absorbing capacity of financial institutions or structures ex ante.  Therefore, macroprudential policy is not designed to manage financial crises directly once they have erupted, but rather to prevent them from happening in the first place.


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