Macroprudential policy: what we have learned and where we are going

Keynote speech by Mr Jaime Caruana, General Manager of the BIS, at the Second Financial Stability Conference of the International Journal of Central Banking, Bank of Spain, Madrid, 17 June 2010.

Abstract

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.