Macroprudential supervision: from theory to policy

While there is now consensus that financial supervision has to focus on the aggregate (macroprudential), in addition to the individual (microprudentia

Publishing date: 25 November 2015
Authors: Dirk Schoenmaker Peter Wierts

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Highlights

Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking.

Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries and sectors.

Macroprudential supervision has been discussed since the onset of the great financial crisis, but policymakers are still slow on the ground. While the current monetary policy stance of quantitative easing may be needed to stimulate subdued growth, the risk of financial booms is increasing. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

About the authors

Dirk Schoenmaker

Dirk Schoenmaker is a Non-Resident Fellow at Bruegel. He is also a Professor of Banking and Finance at Rotterdam School of Management, Erasmus University Rotterdam and a Research Fellow at the Centre for European Policy Research (CEPR). He has published in the areas of sustainable finance, central banking, financial supervision and stability and European financial integration.

Dirk is author of ‘Governance of International Banking: The Financial Trilemma’ (Oxford University Press) and co-author of the textbooks ‘Financial Markets and Institutions: A European perspective’ (Cambridge University Press) and ‘Principles of Sustainable Finance’ (Oxford University Press). He earned his PhD in economics at the London School of Economics.

Before joining RSM, Dirk was Dean of the Duisenberg school of finance from 2009 to 2015. From 1998 to 2008, he served at the Netherlands Ministry of Finance. In the 1990s, he served at the Bank of England. He is a regular consultant for the IMF, the OECD and the European Commission.
Peter Wierts

Peter Wierts is senior economist at the Dutch central bank (DNB) and associate professor at Vrije Universiteit Amsterdam. Over the past years, his work has focused on developing macro-prudential policy, both at DNB and internationally. This includes the development of financial stability mandates, macro-prudential instruments and the policy framework. He is a member of the Instruments Working Group of the European Systemic Risk Board (ESRB) and a lead author of the 2014 ESRB Flagship report on macro-prudential policy. He earned his PhD in economics at the University of Reading.

Previously, Peter worked for the ESRB (short-term secondment, 2013), the European Commission (DG ECFIN; 2002-2005) and the Dutch Ministry of Finance (1996-2002). His publications appear in policy oriented journals such as Economic Policy, International Journal of Central Banking, European Journal of Political Economy and Journal of Common Market Studies.