Browsing by Subject "macroprudential policy"

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  • Topi, Jukka (2015)
    Bank of Finland. Bulletin 2/2015
    Financial crises and other serious financial disruptions may be caused by several different types of risks. Macroprudential policy, designed to prevent such crises, needs a more diversified set of tools than are available in Finland at present. Although the Board of the Financial Supervisory Authority already has access to a number of macroprudential instruments, there is reason for the toolkit to be supplemented. There is a need for instruments to ensure capital adequacy in the Finnish banking sector and, if necessary, prevent the housing market overheating.
  • Chen, Sophia; Ratnovski, Lev; Tsai, Pi-Han (2019)
    BOFIT Discussion Papers 5/2019
    We estimate credit and fiscal multipliers in China, using subnational political cycles as a source of exogenous variation. The tenure of the provincial party secretary, interacted with the credit and fiscal expenditure used in other provinces, instruments for provincial credit and government expenditure growth. We find a fiscal multiplier of 0.75 in 2001-2008, which increased to 1.2 in 2010-2015, consistent with higher multipliers in a slower economy. At the same time, a credit multiplier of 0.2 in 2001-2008 declined to close to zero in 2010-2015, consistent with credit saturation and credit misallocation. Our results suggest that credit expansion cannot further support economic growth in China. The flip side is that lower credit growth is also unlikely to disrupt output growth. Fiscal policy is powerful, and can cushion the macroeconomic adjustment to lower credit intensity.
  • Tölö, Eero (2015)
    Bank of Finland. Bulletin 2/2015
    In the wake of the international financial crisis, authorities have been given new tools to prevent such crises. These tools – or macroprudential instruments – are intended to enhance banks’ resilience to risk and prevent the excessive lending that often underlies asset price bubbles. In making decisions on deployment of the macroprudential tools, authorities will be supported by a set of early warning indicators confirmed by research data to best predict the outbreak of banking crises.
  • Kim, Soyoung; Mehrotra, Aaron (2017)
    BOFIT Discussion Papers 4/2017
    We examine the effects of monetary and macroprudential policies in the Asia-Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macro-prudential policy actions, we show that tighter macroprudential policies used to contain credit growth have also had a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policy-makers, especially during times when low inflation coincides with buoyant credit growth.
  • Asplund, Tuulia (2017)
    Bank of Finland. Bulletin 2/2017
    The European Union has for about two years witnessed the conduct of macroprudential policy mainly based on EU legislation and calibrated for national circumstances. In most cases, the measures have been of a tightening nature and aimed at addressing the banking sector’s structural risks and lending for house purchase. Regulatory reforms and macroprudential measures have improved the risk resilience of the bank-centred EU financial system. Work on also targeting macroprudential policy at stability risks building up beyond the banking system is at an initial stage.
  • Hakkarainen, Pentti (2015)
    Bank of Finland. Bulletin 2/2015
    Finland’s financial markets are, on the whole, stable. Nevertheless, the concentrated nature of the banking system, the accumulation of housing debt and an environment of low interest rates expose the economy and the financial system to potential problems. Moreover, the exceptional economic and financial market situation brings new, unforeseen risks in addition to the already identified vulnerabilities. This requires particular vigilance from economic policy-makers and other authorities.
  • Bank of Finland (2017)
    Bank of Finland. Bulletin 5/2016
    The European Systemic Risk Board (ESRB), which is responsible for macroprudential oversight of the EU’s financial system, has issued a warning to Finland concerning the medium-term vulnerabilities related to household indebtedness and lending for house purchase. For purposes of risk mitigation, more efficient instruments should be made available to the Finnish authorities to limit the maximum size of new housing loans relative to the loan applicant’s debt-servicing capacity. There are, however, no threats to the stability of the Finnish financial system in the short term.
  • Bank of Finland (2017)
    Bank of Finland Bulletin. Analysis
    There are no immediate threats to the stability of the Finnish financial system. The relocation of Nordea’s corporate headquarters will, however, increase the banking sector’s exposure to structural vulnerabilities. The regulatory and supervisory reforms already implemented and participation in the European Banking Union will serve to mitigate the risks associated with the expansion of the banking sector, but adoption of a common European Deposit Insurance Scheme remains an important measure yet to be implemented within the Banking Union. An income-related cap on loans is needed to rein in the increase in household indebtedness.
  • Bank of Finland (2015)
    Bank of Finland. Bulletin 5/2015
    Threats to the stability of the euro area financial system relate to the risks to global economic growth – such as uncertainties around developments in China – and to the international financial markets. The profitability of the euro area banking sector has improved from the weak level witnessed previously, but the large amount of non-performing loans continues to weigh on banks’ balance sheets. Risks to the Finnish financial system are associated with the weakness of the economy and household debt. In order to contain potential overheating on the housing loan market and household indebtedness, the authorities will need new additions to their toolbox.
  • Bank of Finland (2015)
    Bank of Finland. Bulletin 2/2015
    Finland’s domestic financial system has continued to function well despite the prolonged recession. Short-term risks to the stability of the domestic financial system relate particularly to weaker-than-forecast developments in the Finnish economy and risks developing on the international financial markets.
  • Freystätter, Hanna (2015)
    Bank of Finland. Bulletin 4/2015
    The operating environment for monetary policy has changed: the euro area macroprudential system – or macroprudential framework –for dampening country and sector-specific overheating is now stronger than before the financial crisis. The new system is, however, not yet complete, which increases the need to contribute to the maintenance of financial stability also via monetary policy measures. Even if the macroprudential system were stronger than it currently is, it is very difficult to fully prevent the possibly unfavourable side-effects of an exceptionally accommodative monetary policy. In the current situation, however, the strengthening of economic growth via monetary policy measures does also support financial stability.
  • Tölö, Eero; Miettinen, Paavo (2018)
    Bank of Finland Research Discussion Papers 25/2018
    We examine bank capital shocks using a recent new approach based on non-normal errors in vector autoregressive models. Using a sample of 14 European economies over January 2004 through March 2018 we identify two distinct classes of bank capital shocks, capital tightening shocks, and bank profitability shocks. We find that both bank capital shocks frequently lead to changes in lending volume and interest rates for new loans. In contrast to some recent similar studies, we find less evidence for impact on production. Bank capital shocks have further effects on the substitution between the bank and market-based financing and on credit allocation across different borrower sectors. Policymakers may find these results useful when considering counter-cyclical adjustments to the bank capital requirements.
  • Kalatie, Simo; Laakkonen, Helinä; Tölö, Eero (2015)
    Bank of Finland Research Discussion Papers 8/2015
    Available also as 'Evaluating indicators for use in setting the countercyclical capital buffer' in International Journal of Central Banking, 14, 2, 2018: 51-112 http://urn.fi/URN:NBN:fi:bof-201803221385
    According to EU legislation, the national authorities should use the principle of 'guided discretion' in setting the countercyclical capital buffer (CCB), which increases banks' resilience against systemic risk associated with periods of excessive credit growth. This means that the decision should be based on signals from a pre-determined set of early warning indicators, but that there should also be room for discretion, as there is always uncertainty associated with the use of early warning indicators. The European Systemic Risk Board (ESRB) recommends that the authorities use the deviation of the credit-to-GDP ratio from its long term trend value (credit-to-GDP gap) as the primary indicator in setting the CCB. In addition, designated authorities should use in their decision making indicators that measure private sector credit developments and debt burden, overvaluation of property prices, external imbalances, mispricing of risk, and strength of bank balance sheets. Based on an empirical analysis of data on EU countries and a large assortment of potential indicators, we propose a set of suitable early warning indicators for each of these categories.
  • Silvo, Aino (2018)
    Bank of Finland. Scientific monographs. E 52
    This thesis consists of an introductory chapter and three self-contained essays that apply insights from the microeconomic theory of corporate finance in a macroeconomic setting in order to explain and understand various market failures that were at the roots of the global financial crisis of 2007–2009. In particular, I study various forms of incomplete information in the credit market, and their implications on financial stability and on business cycles in the aggregate economy. I also seek to understand how monetary and macroprudential policies can be used to maintain financial stability, and how these two policies interact.
  • Kauko, Karlo; Norring, Anni (2018)
    Bank of Finland. Bulletin 2/2018
    Borrower-based instruments generally refer to measures aimed at mitigating the indebtedness of individuals or households. These instruments have most commonly been used to impose limits on housing loans. The purpose of borrower-based instruments is to contain household indebtedness and prevent house price bubbles. The most common instrument in Europe is the maximum loan-to-value (LTV) ratio for housing loans, i.e. the loan cap, which is also in use in Finland. Research has proven the effectiveness of borrower-based instruments in preventing both price bubbles and excessive indebtedness.
  • Taipalus, Katja; Timonen, Jouni (2015)
    Bank of Finland. Bulletin 4/2015
    In a prolonged environment of exceptionally low interest rates, the authorities are responsible for ensuring the adequate monitoring of potential vulnerabilities due to low interest rates. Before measures to manage risks can be implemented, the risks must first be identified. Owing to continuous market developments, there is a strong need to update the analysis conducted by the authorities.
  • Koskinen, Kimmo; Laakkonen, Helinä (2017)
    Bank of Finland. Bulletin 2/2017
    Investors’ optimism on the financial markets can rapidly turn to risk aversion if global economic or political uncertainty increases. Longer-term risks related to indebtedness and the housing markets are considerable, especially in emerging economies, although the Nordic countries, for example, are also vulnerable. The condition of the banking sector and public finances gives cause for concern particularly in some euro area countries. In addition, uncertainties regarding financial regulation have increased in the United States.
  • Hakkarainen, Pentti (2016)
    Bank of Finland. Bulletin 2/2016
    Euro area monetary policy and domestic fiscal and structural policies are supporting Finland’s slowly recovering economy. In a weak cyclical environment, there are no signs of acute threats to financial stability. The low level of interest rates has the potential to increase the risk of over-indebtedness and further feed asset prices. This sort of development could add risks to the Finnish financial system and reinforce structural vulnerabilities. Close monitoring is necessary to preserve the stability of the financial markets. Addressing stability threats requires access for the authorities to an adequate set of macroprudential instruments, which must be created in good time.
  • Bank of Finland (2017)
    Bank of Finland. Bulletin 2/2017
    The Finnish financial system has operated reliably. The probability of serious disruptions related to economic and credit cycles is small in the immediate future. The structural vulnerabilities of the Finnish financial system have, however, increased, against a backdrop of household debt accumulation and changes in the structure of the banking system.
  • Ambrocio, Gene (2021)
    Bank of Finland Bulletin. Blog
    Should monetary policy concern itself with financial stability? If yes, how should it do so? These are some of the questions tackled in the recently concluded monetary policy strategy review by the European Central Bank (ECB).[1] This is an important topic, central to many of the challenges that the Eurosystem has faced since the previous review in 2003. In what follows, I cover some of the major findings on monetary policy and financial stability.