Published: 21.12.2022 Updated: 28.12.2022

Macroprudential policy measures or instruments are related to the entire financial system or a significant part of it rather than to the resilience of individual institutions which in turn is in the focus of microprudential policy.

Macroprudential measures aim to reduce the probability of financial crisis and enhance the ability of the financial system to withstand shocks.

The measures are activated when cyclical and structural risks accumulate in the financial system which over time may have a systemic impact. For instance, borrowers (households or businesses) start to undertake disproportionately large credit liabilities, lending reaches excessive levels, price bubbles form in some asset groups, banks take excessive risks, their investment is overly concentrated in some particular segment, banks expose themselves to systemic funding or liquidity risks or their capital buffers are insufficient against the risks they bear or in proportion to their systemic importance in the financial sector.

In view of the lesson learnt from the global financial crisis, the EU banking supervision framework has introduced several macroprudential instruments that may be applied by national supervisory authorities to prevent systemic risks. For example:

  • the additional capital buffer requirements – acting as a safety net they increase the resilience of banks to unexpected shocks and help them continue to offer financial services also in unfavourable conditions:
    • the countercyclical capital buffers – they are designed to strengthen the resilience of banks and prevent procyclical lending development (help dampen excessive credit growth during the upswing of the financial cycle and maintain the supply of credit during the downswing of the financial cycle).
    • the additional capital buffer requirements for global systemically important institutions and other (domestic) systemically important institutions – they aim to improve the resilience of these institutions so as to minimise their negative impact on the economy in the event of stress, taking into account the institutions' systemic importance.
    • the systemic risk buffer requirements can be set in order to mitigate a certain systemic risk (e.g. excessive banks' investment in some sector, excessively close interdependencies or other risks).
  • the so-called national flexibility measures allowing for the setting of stricter requirements for the banks’ equity level, the risk weight requirements for investment in the real estate sector, the large exposure limits, the public reporting requirements, the capital conservation requirements and the liquidity requirements for a certain period of time.

The national Member States may also set other macroprudential requirements that are not provided for in EU legislation, for instance:

  • the borrower-based requirements affecting lending standards, increasing the resilience of borrowers and lenders to economic shocks and promoting responsible borrowing and lending:
    • loan-to-value (LTV);
    • loan-to-income (LTI);
    • debt-to-income (DTI);
    • debt-service-to-income (DSTI);
    • the borrowers' solvency sensitivity tests gauge the borrowers’ ability to repay their debt when interest rates increase and/or income decreases.
    • maximum maturity limits for loans;
    • amortisation requirements for loans;
  • other requirements, for instance, additional liquidity requirements.

The macroprudential measures developed so far are more focused on the banking sector; nevertheless, the macroprudential instruments that are also applicable to the non-bank financial sector are being gradually developed in Europe.