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Macroprudential Policy

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Macroprudential Policy

A Case Study from a Tabletop Exercise

New York Fed,

5 min read
5 take-aways
Audio & text

What's inside?

Macroprudential policy tools to steady markets under financial duress may be critical in the next crisis.

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Editorial Rating

8

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  • Innovative

Recommendation

In the wake of the 2008 financial crisis, the US Federal Reserve has looked at using macroprudential tools – regulatory and rule-based actions, distinct from traditional monetary policy – to mitigate systemic risk in future financial disruptions. In this high-level examination of macroprudential applications, central bankers Tobias Adrian, Patrick de Fontnouvelle, Emily Yang and Andrei Zlate examine how and why the levers would work during a potential risk event. getAbstract recommends their comprehensive, esoteric insider’s report to central bankers, policy makers and financial professionals.

Summary

In 2015, members of the Financial Stability Subcommittee of the Conference of Presidents (COP) of the Federal Reserve Banks led a tabletop exercise to determine the use and effectiveness of macroprudential tools to handle shocks to the financial system and dampen their impact on the economy. These instruments are “rules or requirements that enhance…safety and soundness” in the areas of capital, liquidity and credit. They also include “stress testing and supervisory guidance” in Fed communications. From a capital perspective, the macroprudential toolkit...

About the Authors

Tobias Adrian is a senior vice president and Emily Yang is an assistant vice president at the Federal Reserve Bank of New York. Patrick de Fontnouvelle is a vice president and Andrei Zlate is a senior financial economist at the Federal Reserve Bank of Boston.

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