Macroprudential supervision: from theory to policy

| Publication date: 3 Feb 2016 | External Author(s): Schoenmaker, D, Wierts, P | JEL Classification: E58, G18, G28 | Journal: National Institute Economic Review Issue 235 | Publisher: Sage Publications, London

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. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

Keyword tags: 
financial cycle
macroprudential policy
financial supervision
leverage ratio