Academic journal article The Reserve Bank of New Zealand Bulletin

Macro-Prudential Tools May Bolster Financial System: 25 March 2011

Academic journal article The Reserve Bank of New Zealand Bulletin

Macro-Prudential Tools May Bolster Financial System: 25 March 2011

Article excerpt

Macro-prudential instruments may help bolster financial system resilience and possibly moderate credit cycles, but expectations need to be realistic about what can be achieved, Reserve Bank Governor Alan Bollard told a conference on Basel 3 in Sydney today.

Dr Bollard said a strong micro-prudential framework focused on ensuring the balance sheets of individual institutions are robust to shocks--is still essential for a robust financial system, and remains at the heart of New Zealand's efforts to maintain stability in the financial system.

"However, the Global Financial Crisis showed that a micro-prudential approach may on its own not guarantee system-wide financial stability," he said. "Policymakers are increasingly looking at macro-prudential instruments policy tools that might be used to promote a more stable and resilient financial system and help smooth the credit cycle, reducing the risk of boom-and-bust cycles."

Dr Bollard said there has not been a pressing need for the use of such tools given recent weakness in the credit cycle. "However, we do need to keep preparing for how we might deal with credit and asset price booms when they recur in the future."

Dr Bollard said the Reserve Bank has undertaken a review of macro-prudential tools and identified several that it would contemplate using in appropriate circumstances, while keeping expectations realistic. …

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