Macroprudential policy: working towards a new consensus
Remarks of Mr Jaime Caruana, General Manager of the BIS, presented at the high-level meeting on "The Emerging Framework for Financial Regulation and Monetary Policy" jointly organised by the BIS's Financial Stability Institute and the IMF Institute Washington DC, 23 April 2010.
The speech places macroprudential policy within the emerging framework for financial stability and discusses the challenge entailed in turning this macroprudential concept into a reality. Macroprudential policies are designed to increase the stability and resilience of the financial system as a whole, not just of individual institutions or markets. To achieve financial stability, prudential policies need the support of sound macroeconomic policies. Monetary policy should respond in a symmetric fashion during the boom and bust phases of financial and business cycles. Fiscal policy must play a supporting role as well, and international cooperation is vital. Policymakers need to respect the limits of macroprudential policy and to avoid any overconfidence that it can fine-tune the macroeconomic cycle. At best, such policy can relieve some of the pressure on traditional macroeconomic tools. Since macroprudential policy has yet to be implemented comprehensively, policymakers should not expect too much from it. The elements of this macroprudential framework need to be calibrated carefully and complemented with a more active approach to supervision.