Workshop on Concrete Macro-Prudential Tools


13 jan 2010
Introduction by Henk Brouwer, Executive Director DNB

First Session: Macro-Prudential Objectives and Tools

Chair: Stijn Claessens

Introductions by: Raghuram Rajan (University of Chicago), Laura Kodres (IMF)

The objective of macro-prudential regulation should be reducing systemic risk, i.e., increasing financial stability, reducing externalities, avoiding asset prices bubbles/credit booms

Systemic risk can be best summarized as propagation risk. What are the main propagation channels?

  • Funding fragility and liquidity risk/fire sales
  • Counterparty risk in opaque asset markets
  • Build up in uninformed lending
  • Excess leverage

Tools to control systemic risk creation

  • Regulation: quantitative constraints (e.g. on leverage), buffers (e.g., higher capital ratios, reserve requirements)
  • Fees: charges for liquidity, CoVar, size, private insurance

What is balance between regulation and (externality) taxation? When are regulation and taxation perfect substitutes? What happens under uncertainty, private information, selective enforcement?

Second Session: The Use of Macro-Prudential Tools

Chair: Enrico Perotti

Introductions by: Javier Suarez (CEMFI), Claudio Borio (BIS)

Macro-prudential tools to deal with the cycle

  • Countercyclical regulation measures: capital ratios, loan-loss provisioning, cyclically adjusted compensation, etc.
  • Countercyclical tax measures: limits on tax losses, increase vesting period for options, bonus taxes, cyclically adjusted taxation (e.g., of loan-loss provisioning)

What is relationship of macro-prudential tools with monetary policy for dealing with cycle?

Systemic and cycle: What is the balance between discretion and rules? How to ensure adequate enforcement?  What is the perimeter of macro-prudential rules?

Third Session: Governance of Macro-Prudential Policy and Fiscal Aspects

Chair: Jakob de Haan

Introductions by: Jeremy Stein (Harvard), Charles Goodhart (LSE)

Who should have macro-prudential oversight? A council of regulators with a central role for the liquidity support provider?  Conflict of interests? International dimensions?

What are the requirements in terms of information, accountability, conflict of interests and independence?  What ensures preventive intervention?

What are the fiscal aspects of systemic risk taxation? Is taxation aimed at incentives, claw back of past costs, or a fee for future insurance? Are some revenues best aimed at a burden sharing fund?  Or better put to general revenues?


Stijn Claessens (IMF), Jakob de Haan (DNB and University of Groningen), Enrico Perotti (University Amsterdam and DSF)