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Journal number 3 ∘ Nino Zhorzhikashvili
Macroprudential Policy and its Effective use Problems ( European experience)


The global financial crisis of 2008 once again raised the issue of more active use of macroprudential policy, as it was revealed that the microprudential policy and its regulations were not sufficient for financial stability. Macroprudential policy-policy that  focuses on the regulation of the entire banking system, which includes the identification of the systemic and  financial risks and aims to eliminate economic losses at a minimum level , monitoring and control, pursuing the regulatory and countercyclical  policy in financial sector to ensure economic stability.

The purpose of the Macroprdential  Policy is to increase the sustainability of the financial system towards endogenous shocks to limit financial imbalance and to minimize macroeconomic expenses caused by financial instability. To do this, it is necessary to carry out countercyclical  policy  and to prevent risks in this regard.

Effective implementation of the macroprudential  approach depends on supervision and coordinated action by the central bank. Central banks are naturally involved in implementing macroprudential  policy. Monetary policy is more actively using unconventional methods and instruments of regulation as tools of macroprudential  policy. Before the global financial financial crisis, there was  a spread opinion about existing conflict between macroprudential and monetary policies, but crisis revealed the need of close cooperation of these policies.

The ECB monitors developments in the banking sectors of the euro area and the EU as a whole, as well as other financial sectors, to identify any vulnerabilities and check the resilience of the financial system. It carries out these tasks together with the other central banks of the Eurosystem and the European System of Central Banks. The emergence of possible systemic risks in the financial system is addressed through macroprudential policies. The overarching goal of macroprudential policy is to preserve financial stability. In the Euro Area, macro-prudential policy seems of particular relevance. Indeed, within the framework of the single monetary policy Member States can no longer use the interest rate to address domestic imbalances. Against the background of the current lose monetary policy stance and the low interest rate environment, macro-prudential instruments could be useful tools to prevent the buildingup of asset bubbles, excessive private/household debt and excessive banks’ leverage.

Discussing the active use of macroprudential  policy in the European region has been  started during  the global financial crisis, and the results of recent years have shown  the success  of  implementing the practice of mentioned policy instruments.  Specifically, such instruments are used, such as the loan To value (LTV),  Loan To Income (LTI)  and  capital countercyclical buffer.

Nevertheless, Euro Union countries have begun urgent implementation and adoption of macroprudential policy, countries differ in this regard and we can divede them in 4 groups:

  1. Countries   actively using macroprudential  policy and have more experience in this regard
  2. Countries that use this policy and its instruments in small doses.
  3. Moral conviction - countries that seek to morally and verbally act on separate sectors of economy, households  and firms. However, the efficiency of the emphasized policy is based on  country's government reputation.
  4. 4. Countries that do not use macroprudential policy tools.

    In Euro region we can emphasise several problems in regards of efeective use of macroprudential policy:

-There is no close connection and mediation between the local and host countries between supervisory bodies. This connection is complicated because they use different regulations and different tools of macroprudential policy.

-There is no mechanism that distributes risks and expenses between the eurozone countries and their subsidiary companies that are located abroad.

 -While Europe is discussing the problem of coordination, other problems have also occurred: the influence of the foreign financial system on EU countries.

-Decentralization - Before the crisis, the financial stability function was decentralized at the national level between central banks, supervisory boards, property management and deposit insurance insurers (despite the European Financial System integration).

-Segmentation-before crisis, financial stability function was distributed between countries and sectors. For example, banking  supervisory boards and financial conglomerates independently implementing  financial policy.

-The lack of information and data- statistical data is not often available and some data are lost at all, which generates problems in terms of data  quality.  Quality, accuracy, and volume of data are playing a crucial role in analyzing the situation.

Keywords :  macroprudential  policy, financial stability, capital countercyclical buffer,  financial crisis.