Macroprudential supervision is now part of the standard macroeconomic toolkit but it involves a set of relatively untested policies. A new VoX eBook collects the thinking of a broad range of leading US and European economists on the matter. A consensus emerges on broad objectives of macroprudential supervision, but important disagreements remain among the authors.

1. Macroprudentialism
A new Vox eBook
Dirk Schoenmaker
Duisenberg school of finance
15 December 2014

2. 2
Overview
1. Why macroprudentialism?
2. Two pillars
3. What objectives?
4. European coordination
5. More of an art than a science!

3. 3
Why?
• Currently: low interest rates, but risk of (housing) bubbles
• Before crisis:
Ø Monetary policy: inflation of consumption goods, but
not inflated asset prices
Ø Microprudential: individual institutions, with models
assuming exogeneous risk
• Macropru missing link: need to look at financial system as
a whole + endogeneous feedback loops

4. 4
Policy framework

5. 5
Two pillars

6. 6
What objectives?
• On the cyclical (time-series) dimension:
Ø Just increasing resilience of financial system against
financial shocks (Borio); or
Ø Stabilising credit cycle (Gersbach and Rochet)
• On the structural (cross-sectional) dimension:
Ø Capital surcharges for systemic banks to reduce TBTF
Ø But how high?
• Scope: banking, or also securities, insurance and pensions?

7. Financial cycle is strong!

8. 8
Monetary vs Macroprudential
• Tinbergen: two objectives – two instruments:
Ø Yes, Goodhart and Tucker: macropru more targeted at
particular risks (e.g. housing/property); or
Ø No, Borio: interest rates also needed for risk-taking
channel
Ø Middleground, Portes: sometimes need to struck
compromise

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Macro vs micro prudential
• Different perspective / orientation:
Ø Borio: Macro lens towards prudential rules
Ø Operational: when designing prudential rules, choose the
macro least damaging
• Hierarchy of objectives:
Ø Tucker and Dirks et al: macro should come first
Ø But be careful for forbearance (delaying necessary action)

10. 10
Hierarchy of objectives
Figure 2. Hierarchy of objectives
Source: Kremers and Schoenmaker (2014)
Monetary stability Financial stability:
macro-prudential
Financial soundness:
micro-prudential
Level
Economy
Individual
institutions
↔
↔
Objectives

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Eurozone
• Monetary and Banking Union:
Ø Centralised monetary policy
Ø Centralised banking supervision (micro prudential)
Ø But decentralised macroprudential supervision
• Is that all right?
Ø Sapir and Acharya/Calomiris: need for centralised macro
prudential supervision by ECB (together with national)
Ø With differentiated implementation as financial cycle differs
across countries

12. Eurozone

13. 13
Concluding
• Need for analytical framework / model:
Ø Difficult because externalities are multifacetted and
endogeneous feedback loops
Ø Be aware of unintended consequences
• But we need to get into action:
Ø Macroprudentialism is more art than science
Ø Democratic accountability important because of impact
on citizens

14. 14
Download
• Download the Vox eBook on macroprudentialism:
http://www.voxeu.org/article/macroprudentialism-new-vox-ebook

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