Macroprudential Policy: Past, Present and Future Geoff Bascand - - PowerPoint PPT Presentation
Macroprudential Policy: Past, Present and Future Geoff Bascand Deputy Governor and General Manager of Financial Stability Reserve Bank of New Zealand Outline Why are we bringing back direct lending restrictions? Financial stability
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stability.
stability? Were there any side effects?
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Identify and monitor risks; support effective self and market discipline Establish rigorous baseline requirements, and adapt as necessary Minimise the costs of institutional distress or failure
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Greater lending Asset prices go up Defaults go down Lending standad falls Banks adopt same strategy
Reduced lending Asset prices go down Defaults go up Banks need more capital Bank funding costs go up
Figure 1: Boom bust financial cycles
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Figure 2: The role of housing bubbles and credit in recessions (1870-2013) Source: Jorda et al.
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2 4 6 8 10 1 2 3 4 5 Recession Bubble, low credit Bubble, high credit Years from crisis Percentage change in real GDP per capita
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complementary
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Crisis Management Crisis Prevention Purpose Relevant tools Impact on financial system resilience Impact on wider economy Supervision, oversight and disclosure Macroprudential policy Reduce risk that the financial system amplifies a severe economic downturn Borrower restrictions (LVRs) Reduced losses in a severe economic downturn More resilient households and banks reduce potential severity of an economic downturn Capital and liquidity instruments (CCyB/SCR) Lowers incentives on banks to deleverage in a downturn; supports higher credit supply and economic activity Prudential policy Maintain baseline resilience
Capital buffers Banks remain solvent through the economic cycle Maintains market confidence and lowers risk of sudden increases in funding costs for households, businesses and the economy Liquidity policy Governance and local incorporation Manage and limit impact of distress or failure Collateral standards Banks remain functioning parts
Maintains availability of credit and banking services necessary for economic activity Mitigates costs for creditors and taxpayers Outsourcing Open Bank Resolution Minimum capital Losses absorbed first by shareholders
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stability risks.
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Figure 3: Estimated mortgage losses as share of housing capital requirement in a downturn.
10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 Current Counterfactual % %
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Figure 4: Share of first home buyer high-LVR lending
10 20 30 40 50 60 70 80 10 20 30 40 50 60 70 80 2014 2015 2016 2017 2018 % % Share of all first home buyer lending Share of all high-LVR lending
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areas.
Lessons:
policy.
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policies
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