Capital buffers and the micro-macro nexus

Highlights

• Together, microprudential and macroprudential policies contribute to financial stability.
• Frictions across the macro-micro policy divide may emerge due to the reliance on a single instrument – banks' minimum capital targets – to achieve distinct objectives.
• Integrating macro- and microprudential expertise into stress tests can help to alleviate tensions and promote a common understanding of capital needs without compromising each authority's mandate.
• As there is always a risk of inconsistent policy actions, institutional arrangements for setting capital buffers should facilitate appropriate coordination.

The views expressed in this publication are those of the authors and not necessarily those of the BIS.