The challenge of taking macroprudential decisions: who will press which button(s)?

Speech by Mr Jaime Caruana, General Manager of the BIS, at the 13th Annual International Banking Conference, Federal Reserve Bank of Chicago, in cooperation with the International Monetary Fund, Chicago, 24 September 2010.

Abstract

Macroprudential policy has moved into the mainstream of policymaking with the recent agreement on Basel III. Fresh work in support of this agreement has advanced our analytic capacity in assessing the effects of altered capital and liquidity norms on the real economy, though much still needs to be done. Basel III itself takes a big step forward in putting a macroprudential overlay on regulation, relying on rules where possible but necessarily leaving scope for discretionary policy. There should be no illusion, however, that it is easy to decide when and how to exercise that discretion. At the same time, the toolkit of macroprudential policy is being enlarged. Finally, the governance of macroprudential policy should build on the strengths of central banks.