Legal Foundations Of Macroprudential Policy

Macroprudential policy focuses on the financial system as a whole, as distinct from individual institutions, and its objective is to limit the costs to the real economy from system-wide distress of the financial sector. This book offers a critical, contextual and comparative examination of the nature of macroprudential policy as an emerging legal domain. It explores why macroprudential policy is necessary and how best to design tailored legal, institutional and governance frameworks that support the various supervisory stages in macroprudential regimes. Questions addressed relate to the design of the macroprudential mandate and institutional structures, independence, transparency and accountability arrangements, the nature and limitations of macroprudential authorities' supervisory powers, as well as the challenges that are likely to be encountered during the generation, collection and analysis of data and the use of macroprudential tools. The book extends well beyond being a 'one-stop-shop' introduction on all aspects of macroprudential policy. It digs deeper and does the heavy lifting by analysing the unique features of macroprudential policy that set it apart from other policy areas; examining the pulling (and at times, contradicting) forces which affect it and surfacing its complex and evolutionary nature and the unique challenges confronting macroprudential authorities.In order to derive and capture the theoretical foundations of macroprudential policy and support the high-level suggestions made on how to operationalise it, the book draws on established scholarships from international law as well as theories developed in the Organisational Behaviour field. It presents and explains the law within the context of the most recent empirical research in economics, including research on the prevalent governance structure of macroprudential policy, its interaction with other policy areas and the effectiveness of macroprudential tools. The normative discussion in the book is also grounded in practical specificities through detailed critical analysis of macroprudential policy frameworks at the national level (UK and US), regional level (EU) and global level (FSB, IMF and BIS). Dr. Anat Keller is a Lecturer in Law at the Dickson Poon School of Law, King's College London, and a Research Fellow at the Centre for Data Analytics for Finance and Macroeconomics (DAFM) at King's Business School. She was previously a Teaching Fellow and a Visiting Lecturer in Law at University College London (2007-2016). She is also a qualified solicitor and serves as a Deputy Chief Examiner of the University of London. She is co-author of the book 'Law Relating to Financial Services' now in its 8th edition and has published numerous articles and chapters in peer-reviewed journals and edited collections focusing on macroprudential policy.

Macroprudential policy focuses on the financial system as a whole, as distinct from individual institutions, and its objective is to limit the costs to the real economy from system-wide distress of the financial sector. This book helps readers discover and decipher the multi-faceted and fascinating area of macroprudential policy through taking a theoretical, interdisciplinary and legal-focused approach.

"This book critically examines the theoretical foundations and legal framework for macroprudential policy, its tools and governance in the UK, the US, and the EU"--

The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks. The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising. Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer). The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy—in good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.

This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries

We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—a?ect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-a?ected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.

Macroprudential policy (MPP) has been one of the major initiatives in the post-2008 crisis restructuring of financial regulation. Under the macroprudential mandate, the regulator monitors and judiciously controls systemic risk in the financial system, in an attempt to minimise the probability and severity of a future financial crisis. The book reveals why MPP authorities are rightfully at the centre of a highly sensitive policy debate, as MPP necessitates the allocation of significant regulatory power to technocrats, while the highly technical nature of MPP makes policy evaluation challenging. Specific issues examined include: the importance of financial stability as a public policy goal; the political economy issues stemming from the delegation of MPP to an independent authority; and the definition of accountability in the context of MPP. Focusing on a case study on the Financial Policy Committee of the Bank of England, the macroprudential authority in the UK, the book develops the normative grounds to justify the need for accountability in the conduct of MPP, while also formulating the necessary institutional framework to ensure the accountability of MPP authorities.

Financial regulation has entered into a new era, as many foundational economic theories and policies supporting the existing infrastructure have been and are being questioned following the financial crisis. Goodhart et al’s seminal monograph "Financial Regulation: Why, How and Where Now?" (Routledge:1998) took stock of the extent of financial innovation and the maturity of the financial services industry at that time, and mapped out a new regulatory roadmap. This book offers a timely exploration of the "Why, How and Where Now" of financial regulation in the aftermath of the crisis in order to map out the future trajectory of financial regulation in an age where financial stability is being emphasised as a key regulatory objective. The book is split into four sections: the objectives and regulatory landscape of financial regulation; the regulatory regime for investor protection; the regulatory regime for financial institutional safety and soundness; and macro-prudential regulation. The discussion ranges from theoretical and policy perspectives to comprehensive and critical consideration of financial regulation in the specifics. The focus of the book is on the substantive regulation of the UK and the EU, as critical examination is made of the unravelling and the future of financial regulation with comparative insights offered where relevant especially from the US. Running throughout the book is consideration of the relationship between financial regulation, financial stability and the responsibility of various actors in governance. This book offers an important contribution to continuing reflections on the role of financial regulation, market discipline and corporate responsibility in the financial sector, and upon the roles of regulatory authorities, markets and firms in ensuring the financial health and security of all in the future.