Macro-prudential policy and its instruments

1. Macro-prudential policy and its instruments

Peter Spicka, Senior Adviser for Banking Supervision and Financial Stability
The views expressed in this presentation are those of the author and do not necessarily reflect the official views of the Deutsche Bundesbank

2. Macro-prudential policy and its instruments Overview

Introduction
Macro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
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3. Macro-prudential policy and its instruments Introduction – Evolution of systemic risk

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4. Macro-prudential policy and its instruments Introduction – Evolution of systemic risk

Dimensions of systemic risk
Structural
Cyclical
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• Distribution of risk across the financial
system
• Tendency of banks to assume excessive
risk in the upswing and to become
excessively risk averse in the downturn

5. Macro-prudential policy and its instruments Introduction – Benefits and costs of using instruments

Source: BIS (2012)
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6. Macro-prudential policy and its instruments Overview

Introduction
Macro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
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Slide 6

7. Macro-prudential toolkit General considerations

Systemic perspective required for
regulation
• Regulatory arbitrage between banking,
insurance and shadow banking sector to be
avoided
• Cumulative impact of reforms must be
considered
• Possible counteractive effects or conflicting
incentives should be noted
• Lack of consistency can reduce the intended
effect of the new rules
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8. Macro-prudential toolkit Types of instruments

Three types of macro-prudential
instruments
„Soft“
instruments
• Communication
„Medium“
instruments“
• Warnings and
recommendations
„Hard“ (policy) • Direct macro-prudential
interventions
instruments
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9. Macro-prudential toolkit ”Soft” instruments

Communication
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Speeches
Articles and interviews
Financial Stability reports
Discussion Papers
Journal publications
Conferences

10. Macro-prudential toolkit ”Hard” (policy) instruments

(1)
Excessive
credit growth/
Leverage
(2)
Excessive
maturity
mismatch
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Counter-cyclical capital buffer
Sectoral capital requirements
Leverage ratio
LTV/LTI/DTI limits
Margin and haircut requirements
• Weighted liquidity ratio
• Restrictions on funding sources
• Unweighted liquidity ratio (e.g. loan-todeposit ratio)

11. Macro-prudential toolkit ”Hard” (policy) instruments

(3)
Exposure
concentrations:
direct and indirect
(4)
Expectations of bailout
(5)
Resilience of
financial
infrastructures
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• Large exposure restrictions
• CCP clearing requirement
• SIFI capital surcharges
• Recovery and resolution plans
Increased disclosure
Margin and haircut requirements for CCP clearing
Structural systemic risk buffer
Deposit guarantee schemes

12. Macro-prudential toolkit Conclusions

Macro-prudential toolkit
• Owing to complexity of markets and intermediaries,
systemic risk can arise in a wide variety of highly
unpredictable forms
• Not possible to create a conclusive list of specific threats
and suitable instruments
• Important to constantly check and , if necessary, update
the toolkit of instruments
• To adequately and promptly counter stability dangers,
the responsible macro-prudential supervisors require
sufficient flexibility in the use of instruments
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13. Macro-prudential policy and its instruments Overview

Introduction
Macro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
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Slide 13

14. Macro-prudential instruments International perspective

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15. Macro-prudential instruments International perspective: Basel III phase-in arrangements

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16. Macro-prudential instruments European perspective

Basel III is implemented in the EU
through a directive and a regulation
(CRD IV/CRR)
• Temporary tightening of supervisory requirements at
national level, including:
• Capital requirements
• Risk weights
• Disclosure obligations
• Liquidity requirements
• Systemic risk buffer
• Countercyclical buffer
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17. Macro-prudential instruments Capital requirements in CRD IV / CRR

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18. Macro-prudential instruments Capital requirements in CRD IV

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19. A macro-prudential policy framework for Europe The instruments under the CRD IV/CRR for macro-prudential use

Source: ESRB (2014)
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20. Macro-prudential policy and its instruments Overview

Introduction
Macro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
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Slide 20

21. Transmission mechanisms and channels Transmission map of raising capital or provisioning requirements

Source: ESRB (2014)
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22. Transmission mechanisms and channels Transmission map of raising sectoral capital requirements

Source: ESRB (2014)
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23. Transmission mechanisms and channels Transmission map of a tightening of the LTV, LTI and DSTI limits

Source: ESRB (2014)
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24. Transmission mechanisms and channels Transmission map for the use of liquidity instruments

Source: ESRB (2014)
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25. Macro-prudential policy and its instruments Overview

Introduction
Macro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
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Slide 25

26. General overview Relative frequency of use of measures by Member State (percentages)

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27. Measures to address excessive credit growth and leverage Relative frequency of use of various types of measures (percentages)

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28. Thank you very much for your attention!

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