|
|
Considerable progress has been made... in establishing an institutional framework for macro-prudential oversight... Within the European Union, the establishment of the European Systemic Risk Board (ESRB) has closed a gap in the European financial supervision framework... This body unites the expertise of central banks and supervisors in Europe with a view to identifying and assessing systemic risks and, if need be, issuing warnings and recommendations for appropriate measures to avert threats to financial stability. To date, the ESRB has made three public recommendations, one of which was to set up national macro-prudential authorities. According to this recommendation on the macro-prudential mandate of national authorities, which was published on 16 January 2012 (ESRB/2011/3), an effective national macro-prudential policy needs a well-defined policy framework. For this purpose the ESRB recommends a legal framework that would prescribe macro-prudential policy objectives, designate the competent authority (with several authorities collaborating, if appropriate) and set forth transparency and accountability requirements. A leading role is assigned to central banks, in particular regarding macro-prudential analysis. Furthermore, macro-prudential authorities should be equipped with the instruments needed to achieve the defined objectives, and should publish the basic tenets of their policy, the decisions they have made and the reasons for those decisions, unless such publication poses a potential risk to stability. The recommended measures are to enter into force by 1 July 2013.
Germany is implementing this recommendation of the ESRB with the Act on Overseeing Financial Stability (Gesetz zur Überwachung der Finanzstabilität), also known as the Financial Stability Act. The main focus of the draft Act is on strengthening cooperation between the Bundesbank, the Federal Financial Supervisory Authority (BaFin) and the Federal Ministry of Finance in the field of financial stability. Above all, it aims to better synthesise micro-prudential supervision and macro-prudential oversight. To this end, the draft Act envisages the creation of a German Financial Stability Commission, on which these three institutions will each have three representatives. The Bundesbank expressly welcomes the fact that this Act will introduce a macro-prudential oversight framework in Germany, enabling Germany to live up to its international responsibilities that follow from the importance of the German financial system.
Outlook: use of macro-prudential intervention instruments
When it comes to using macro-prudential instruments, it is essential to weigh up the pros and cons of deploying a discretionary versus a rules-based approach. Each new financial cycle exhibits both generic and unique characteristics, the assessment of which always requires qualitative information alongside empirical indicators. The timing and intensity of macro-prudential measures will thus need to be gauged with some discretion. At the same time, it must be assured that macro-prudential policy is predictable for market participants and that its instruments are deployed in a transparent fashion. Experience with monetary policy confirms that policymaking works best when it is predictable, transparent and consistent. Thus, a rules-based approach can set out guidelines for the use of instruments, thereby reducing uncertainty for financial market participants. This also makes it easier for macro-prudential policy to counter possible resistance from vested interests, particularly where unpopular measures are concerned.
Given the existence of the single European market, it makes sense to harmonise the conditions and criteria for macro-prudential instruments at the European level in order to avoid jeopardising the efficiency of the single European financial market and to prevent national protectionism. The use of macro-prudential instruments is thus being regulated by the EU in the planned Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR), which are currently the subject of trilogue negotiations between the European Parliament, the EU Council and the European Commission. The legislative initiatives give scope for national macro-prudential authorities to set inter alia the counter-cyclical capital buffer and sectoral risk weights at their discretion. Giving national macro-prudential authorities these powers to avert threats to the financial system is essential. For one thing, national authorities have the greatest expertise when it comes to analysing national macroprudential conditions. For another, the costs of a financial crisis are mainly borne at the national level.
Yet given the integrated nature of the financial systems, macro-prudential policy cannot be viewed solely as a purely national matter. Systemic risks and macro-prudential measures within a given country often have cross-border effects, which also need to be taken into account. Positive externalities, in the form of avoiding financial crises and the associated costs, ensue from macro-prudential policy for both the country taking action and for countries that have trading and financial ties with that country. Likewise, negative externalities, or spillover effects, that can have an unintended effect on the credit supply, on capital and liquidity shifts or on the increase in systemic risk, can arise in connection with the credit cycle and divergent national macro-prudential policies. A degree of coordination within the European Union is therefore necessary.
Effective macro-prudential oversight that is dedicated to safeguarding the stability of the financial system is a key component of a stable monetary and economic union in Europe. Germany has actively responded to this lesson from the financial crisis and has put in place appropriate statutory and institutional foundations. The institutions involved in financial system oversight – the Federal Ministry of Finance, BaFin and the Bundesbank – will now flesh out this framework and make it a practical reality.