BIS Caruana on macroprudential policy: what we have learned and where we are going
21 June 2010
Caruana said that pre-emptive prudential measures can make financial institutions and markets more resilient to systemic risk and perhaps moderate credit and asset price booms as well. He also stressed the importance of central banks in macroprudential policies.
Speaking at the Second Financial Stability Conference of the International Journal of Central Banking in Madrid, Caruana said that experience suggests that pre-emptive prudential measures can make financial institutions and markets more resilient to systemic risk and perhaps moderate credit and asset price booms as well. Central banks can play a prominent role in such macroprudential policies.
To guide their contribution to macroprudential policy, central banks need to adopt a strategy that will make them accountable. Research is needed to improve measures of both the time and cross-sectional dimensions of systemic risk, as well as to enhance knowledge of the effectiveness of specific policy instruments in mitigating it.
The promotion of financial stability requires a broad policy framework, in which prudential policy plays only a part. Contributions must be made by macroeconomic policies, both monetary and fiscal, as well as the institutional framework for effective enforcement of regulation and monitoring. International cooperation is needed on all of these fronts.
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