Reducing Risks in Asia with Macroprudential Policies

Edda ZoliBy Edda Zoli

(Version in 中文, and 日本語)

Booming real estate markets, rapid credit growth and—at least before the Fed’s tapering announcement last year—sustained capital inflows have raised financial stability challenges across many parts of Asia. To address them, policymakers have increasingly made use of macroprudential policies that address the stability of the financial system as a whole rather than that of individual institutions. In some cases they have also resorted to capital flow management measures to counter large capital inflows.

As new analysis in the IMF Asia and Pacific Department’s latest Regional Economic Outlook finds, macroprudential policies, especially measures related to the housing market, have helped mitigate the buildup of financial risks in Asia. In the event of sharp decreases in credit and asset prices going forward, however, it may become useful to ease certain of these measures to avoid excessive deleveraging.

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Macro-Prudential Policies: Putting the “Big Picture” into Financial Sector Regulation

The devastating impact of the global financial crisis created a consensus that pre-crisis financial regulation didn’t take the “big picture” of the system as a whole sufficiently into account and, as a result, supervisors in many markets “missed the forest for the trees.” In other words, they did not take into account the macro-prudential aspects of regulation, which has now become the focus of many authorities. Macro-prudential policies were the focus of discussions in Shanghai earlier this week, where The Peoples’ Bank of China hosted conference titled Macro-Prudential Policies: Asian Perspectives, that brought together central bankers and senior financial officials around the world. At the conference, there was wide agreement that the first step in designing macro-prudential policies ought to be a convergence of views regarding the objectives of such policies.

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