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.