Macroprudential Regulation

Financial Stability: The concept of overall stability of the financial sector, and threats to financial instability.

Systemic Risks: Risks that arise due to interconnections among financial institutions and markets.

Macroprudential tools: Tools that are used to manage systemic risks, such as countercyclical capital buffers, loan-to-value (LTV) ratios, and other tools.

Systemically-important institutions: The concept of large financial institutions whose failure could cause systemic risks.

Financial Contagion: The phenomenon by which the failure or distress of one institution affects others in the financial sector and possibly the economy.

Stress Testing: An analysis of financial institutions’ resilience under adverse economic scenarios.

Early warning systems: Tools that allow for the identification of potential systemic risks before they arise.

Macroprudential coordination: The need for coordination among countries’ macroprudential policymakers in a globalized financial system.

Fiscal implications of macroprudential regulation: The costs and benefits of implementing macroprudential regulation.

Regulatory frameworks: The regulatory agencies and frameworks that support macroprudential regulation, such as banks, central banks, and financial regulators.

Capital Adequacy Regulations: These are regulations that require financial institutions to maintain a certain amount of capital to offset potential losses.

Countercyclical Capital Buffer (CCB): The CCB is a macroprudential regulation tool that aims to increase bank capital levels during economic upswings, so that they have more capacity to absorb shocks during a downturn.

Leverage Ratio: The leverage ratio is a simple, transparent measure of the size of a bank’s balance sheet that is used to limit a bank's borrowing relative to its capital.

Liquidity Regulations: These regulations require financial institutions to maintain a certain level of liquid assets to meet their cash and collateral obligations.

Lending Restrictions: These regulations restrict lending by imposing limits on lending activities, such as loan-to-value ratios for mortgages.

Stress Tests: Stress tests are macroprudential exercises that require banks and other financial institutions to undergo simulations of adverse economic events to assess how they would cope with such shocks.

Systemic Risk Charges: Systemic risk charges are regulatory measures that require banks and financial institutions to hold additional capital buffers based on the assessed systemic risk they pose to the financial system.

Macroprudential Reserve Requirements: These are reserve requirements that are used to reduce systemic risk by requiring banks to hold a certain amount of liquid reserves.

Loan-To-Value (LTV) Limits: These regulations limit the amount of lending that can be made relative to the value of an asset, such as a property.

Debt-To-Income (DTI) Limits: These regulations limit the amount of debt an individual or household can take on relative to their income.

Dynamic Loan Loss Provisions: These are provisions that require banks to create reserves for loan losses based on the risk of their loan portfolio.

Early Intervention Measures: These are measures that aim to detect and address risks to financial stability early, before they become a threat to the system.

Mortgage Interest Rate Restrictions: These regulations limit the interest rates that can be charged on loans, which can help to prevent excessive borrowing and systemic risk.

Interconnectedness regulations: These regulations aim to limit the level of interdependence between financial institutions, which can lead to contagion in the event of a failure.

Disclosure rules: These are regulations that require financial institutions to disclose more information about their activities, which can help investors make informed decisions and prevent risk mismatches.

Macroprudential supervisory practices: These are supervisory practices that provide additional oversight of the financial system to detect and address risks to financial stability.