Macroprudential policy means, in addition to macroprudential supervision, specific measures aimed at preventing systemic risks and geared to the ultimate objective of safeguarding the stability of the financial system as a whole. Consequently, macroprudential policy supports banking supervision and fiscal and monetary policies as a means of promoting sustainable economic growth.
The FIN-FSA Board decides on macroprudential policy. Decisions on measures are based on thorough expert assessments with the primary purpose of identifying potential risks to financial stability as early as possible. Such expert assessments are guided by quantitative risk indicators, which research studies and empirical evidence have found to signal the build-up of systemic risks. In Finland, expert assessment is undertaken in broad-based cooperation between the authorities, involving, in addition to the FIN-FSA, the Bank of Finland and the Ministry of Finance.
In practice, macroprudential risks are assessed via intermediate objectives supporting financial stability. These objectives constitute an analytical basis for the assessment of systemic risks and guide the selection of measures for risk prevention and the monitoring of their effectiveness. In order to have common European practices in place, the European Systemic Risk Board (ESRB) has issued a recommendation on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1). According to the recommendation, the intermediate objectives of national macroprudential authorities should include the following:
- to mitigate and prevent excessive credit growth and leverage
- to mitigate and prevent excessive maturity mismatch and market illiquidity
- to limit direct and indirect exposure concentrations
- to limit the systemic impact of misaligned incentives with a view to reducing moral hazard
- to strengthen the resilience of financial infrastructures.
Each intermediate objective of macroprudential policy can be managed using one or more macroprudential instruments. Macroprudential instruments are based on EU legislation (EU Capital Requirements Regulation and Capital Requirements Directive)1, which may be supplemented in national legislation by separately assigned powers to macroprudential authorities. More information on measures included in EU and national legislation is provided in the section 'Macroprudential instruments'.
Source: ESRB – Flagship Report on Macro-prudential Policy in the Banking Sector.
The European Central Bank (ECB) will play a key role in exercising macroprudential oversight under the Single Supervisory Mechanism (SSM), especially when macroprudential tools are used within the EU prudential regulatory framework. The relevant Regulation2 requires that national macroprudential authorities notify the ECB of their intention to implement macroprudential decisions and duly consider the ECB's view on the measures prior to taking a final decision. The Regulation also gives the ECB the power to apply such macroprudential requirements as are included in EU legislation and which are stricter than those applied by national macroprudential authorities on their own initiative. In addition to the ECB, the European Systemic Risk Board (ESRB) coordinates measures taken at national level within the European Union and may also, based on its own risk assessment, submit recommendations for measures to mitigate systemic risks.
1 Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 and Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.
2 Council Regulation (EU) No 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, Chapter II, Article 5.