Luigi Federico Signorini: An EU legal framework for macroprudential supervision through borrower-based measures

Welcome address by Mr Luigi Federico Signorini, Senior Deputy Governor of the Bank of Italy, at the legal conference on "An EU Legal Framework for Macroprudential Supervision through Borrower-Based Measures", Rome, 23 September 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and gentlemen,

This seminar takes place while the European Commission is working on improving the EU macroprudential framework for the banking sector. A legislative proposal may be submitted by the Commission to the European Parliament and to the Council in the first half of 2023. The purpose of this seminar is to stimulate a debate on the initiatives foreseen by the Commission in the field of borrower-based measures ('BBMs').

Allow me to start this discussion with a few considerations on the current situation, and some very tentative reflections about possible choices for the future.

Macroprudential policy and monetary policy

Macroprudential policy has been defined as the use of primarily prudential tools to limit systemic risk.

Central to this definition is the notion of systemic risk-the risk of disruptions to the provision of financial services as a result of the impairment of all or parts of the financial system, which can cause serious negative consequences for the real economy. By mitigating systemic risk, macroprudential policy ultimately aims to reduce the frequency and severity of financial crises, contributing to overall macroeconomic stability. Macroprudential policy seeks to increase the resilience of the financial system to aggregate shocks by building buffers that absorb their impact, thereby preserving its ability to provide credit to the economy. It can limit the build-up of systemic vulnerabilities over time, by reducing the procyclical feedback between asset prices and credit developments and by containing unsustainable increases in leverage and volatile funding. In addition, in the structural or 'cross-sectional' dimension, macroprudential policy can seek to control the build-up of vulnerabilities within the financial system that arise through both interlinkages between financial intermediaries and individual institutions playing a critical role in key markets, which can make them too important to fail.