The Instruments of Macroprudential Policy

Abstract

This section of the book is devoted to a review of the instruments of macroprudential policy — what levers policymakers can pull in order to achieve their objectives. Quite a lot has been written already about the instruments that UK policymakers will have at their disposal, with the Bank of England publishing a discussion paper on this issue, summarizing a range of conventional measures which the Bank broadly categorizes into three groups: those that affect the balance sheets of financial institutions; those that affect the terms and conditions of financial transactions; and those that influence market structures. As discussed elsewhere in this book, the interim FPC has chosen to focus on a relatively small number of instruments discussed in that paper (at least to begin with) that revolve around capital (the Basel countercyclical buffer, sectoral requirements on capital and a leverage backstop). These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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