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Macro-prudential policy and its instruments
1. Macro-prudential policy and its instruments
Peter Spicka, Senior Adviser for Banking Supervision and Financial StabilityThe 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
IntroductionMacro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
27/04/2016
Slide 2
3. Macro-prudential policy and its instruments Introduction – Evolution of systemic risk
27/04/2016Slide 3
4. Macro-prudential policy and its instruments Introduction – Evolution of systemic risk
Dimensions of systemic riskStructural
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)27/04/2016
Slide 5
6. Macro-prudential policy and its instruments Overview
IntroductionMacro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
27/04/2016
Slide 6
7. Macro-prudential toolkit General considerations
Systemic perspective required forregulation
• 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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Slide 7
8. Macro-prudential toolkit Types of instruments
Three types of macro-prudentialinstruments
„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
Communication27/04/2016
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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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Slide 10
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
27/04/2016
Slide 12
13. Macro-prudential policy and its instruments Overview
IntroductionMacro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
27/04/2016
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 EUthrough 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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Slide 16
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)27/04/2016
Slide 19
20. Macro-prudential policy and its instruments Overview
IntroductionMacro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
27/04/2016
Slide 20
21. Transmission mechanisms and channels Transmission map of raising capital or provisioning requirements
Source: ESRB (2014)27/04/2016
Slide 21
22. Transmission mechanisms and channels Transmission map of raising sectoral capital requirements
Source: ESRB (2014)27/04/2016
Slide 22
23. Transmission mechanisms and channels Transmission map of a tightening of the LTV, LTI and DSTI limits
Source: ESRB (2014)27/04/2016
Slide 23
24. Transmission mechanisms and channels Transmission map for the use of liquidity instruments
Source: ESRB (2014)27/04/2016
Slide 24
25. Macro-prudential policy and its instruments Overview
IntroductionMacro-prudential toolkit
Macro-prudential instruments in European banking regulation
Transmission mechanisms and channels
Review of initial experiences
27/04/2016
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)
27/04/2016Slide 27