What is Macroprudential Policy?
The objective of macroprudential policy is to mitigate the risk of a disruption to the provision of financial services, caused by an impairment of all or parts of the financial system, with serious negative consequences for the real economy. This risk is known as systemic risk. Reflecting recent banking-related European macro-prudential regulation, and the prominent role of the banking sector in the intermediation process, the initial focus is on the banking sector.
To promote financial stability in Ireland, macroprudential policy aims to strengthen the resilience of the domestic banking system so that it can withstand adverse movements in credit and property prices, and other macroeconomic shocks. Such policy measures will be forward-looking and seek to reduce the potential for imbalances to accumulate, given that they could lead to financial distress.
Intermediate objectives are necessary to monitor progress toward achieving these high-level goals. Drawing on the recommendations of the European Systemic Risk Board, such objectives for the banking sector include:
- To prevent excessive credit growth and leverage
- To prevent excessive maturity mismatch and market illiquidity
- To limit direct and indirect exposure concentration
- To reduce the potential for systemically important banks to adopt destabilising strategies and to mitigate the impact of such actions.
Further Information on the Central Bank approach to Macroprudential Policy
Countercyclical Capital Buffer and Other Systemically Important Institutions Buffer - FAQs | pdf 322 KB
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