What to expect from macroprudential policies

Macroprudential policy, a concept initially developed at the Bank for International Settlements (BIS) in Basel, has gained prominence since the start of the financial crisis. As defined by the BIS’ Claudio Borio, “it means calibrating regulatory and supervisory arrangements from a system-wide or systemic perspective, rather than from that of the safety and soundness of individual [financial] institutions on a stand-alone basis” – in colloquial terms, looking not only at the trees but also at the forest as a whole.

Countercyclical capital requirements are one possible macroprudential policy tool, as are maximum loan-to-value or loan-to-income ratios, caps on aggregate lending, dynamic loan loss provisioning, minimum haircuts on securing lending, countercyclical liquidity requirements, various forms of reserve requirements, among other options. Various jurisdictions have created new public bodies to provide macroprudential oversight, including the European Systemic Risk Board (ESRB) which has started operation earlier this year.

What is the actual scope for macroprudential policies, and what should guide their development? What is the link with monetary policy? Which macroprudential policy tools can be effectively and realistically implemented? What will be the future role of the ESRB?

About the speakers

William White has chaired the Economic Development and Review Committee of the Organization for Economic Co-operation and Development since October 2009. From 1997 to 2008, he was the Bank for International Settlement’s Chief Economist (Economic Adviser and head of the Monetary and Economic Department), based in Basel. Prior to joining the BIS in 1994 he worked at the Bank of Canada, including as Deputy Governor, and at the Bank of England. He holds a degree from the University of Windsor, Ontario, and a PhD in Economics from the University of Manchester.

Carmelo Salleo is Adviser at the Frankfurt-based Secretariat of the ESRB, which he helped form in 2010, and Secretary of the ESRB’s Advisory Scientific Committee. Previously he worked at the Bank of Italy, in bank supervision (1995-1999), as senior economist in the Research Department (1999-2003), and as head of the Financial Flows Desk (2003-2010). He holds a Ph.D. in Economics from Harvard University.

The discussion was moderated by Nicolas Véron, senior fellow at Bruegel.