The Misuse of Macroprudential Regulations for Protectionist Purposes: A Real Danger?

Abstract

The ongoing financial crisis shows that reliable information on the exposures to risk of financial institutions is essential for supervisors, policymakers, managers of financial firms, as well as for the public. Macroprudential surveillance facilitates the assessment of risks and the evaluation of the potential costs and rewards of different policy decisions. Macroprudential regulation has to be based on the appropriate measurement of value and risk. Macroprudential policymaking is highly complex and relies on sound microprudential frameworks for legal entities, groups and conglomerates and for all relevant financial institutions. It requires the ability to analyse the interconnection between insurers, banks and other players in the financial market. Macroprudential regulation has the potential to offer incentives for investments, products and risk management for the entire financial market. It therefore has to be formulated with great care. While few macroprudential regulatory frameworks have yet to be put in place, macroprudential arguments have already been used extensively to adapt a number of microprudential frameworks.