Dombret explained why he thought macro-prudential policy was of such vital importance, touching on its broader implications at both the national and the international level.
Conclusion
Macro-prudential policy can be understood as a framework for responding to needs that have arisen because of the way the financial sector has developed. Thus, macro-prudential policy seeks to restore the balance in the financial system populated by market participants, regulators and supervisors.
Unlike in evolution, the objective has been set. Nevertheless, to achieve the desired goals, interactions with other policy areas as well as cross-border spillovers still have to be taken into account. As a consequence, market participants themselves will have to adapt, to comply with new regulatory requirements and to develop their own responses to a changing environment.
Some responses might turn out to be unnecessary for a healthy economy. But former Fed Chairman Paul Volcker was taking things to extremes when he said, “The only useful banking innovation was the invention of the ATM”. Other innovations, however, are beneficial to the development of our financial system, and those should be the ones that survive.
The potential failure of the financial system can come with a huge price tag for society. For this very reason, a stable system is essential. Macro-prudential policy will have a key part to play in this, and national macro-prudential responsibilities are about to be assigned in many countries. Appropriate instruments now need to be developed and implemented; we will have to “walk the talk”. This will be a major challenge for some time to come.
Full speech
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