Cecilia Skingsley: Experience with macroprudential policies
Summary of a speech by Ms Cecilia Skingsley, Deputy Governor of the Sveriges Riksbank,
at a workshop arranged by the Committee on the Global Financial System, BIS, held at the
Hong Kong Monetary Authority, Hong Kong, 10 August 2015.
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Since the global financial crisis, several countries have started implementing macroprudential
policies. This workshop has provided us with the opportunity to deepen our knowledge
regarding how different countries choose, calibrate and implement different kinds of
macroprudential instrument. We have also gained a greater understanding of the efficiency
of these instruments, as well as of how different countries incorporate macroprudential
settings in the calibration of monetary policy.
Although we have come a long way the past few years as regards setting up institutional
frameworks and developing tools, macroprudential policy is still a relatively new policy field in
many countries and there are many important issues that need to be addressed. I would like
to elaborate on three of these issues.
The first is the challenge of determining the proper mix of policy instruments and the right
balance between them, and deciding how fast and resolute our actions should be when
imbalances are building up. For example, on the one hand, we know from international
experience that credit growth can be difficult to curb once it starts accelerating. This would
speak in favour of prompt and strong measures. But, on the other hand, since we only have
limited experience of macroprudential instruments, a step-by-step approach may seem more
attractive. Furthermore, even if the first best solution would be bold steps, it may be more
difficult to gain consensus for these. I think it would be better and more reasonable to take a
number of small steps in order to avoid inaction bias and a standstill in reforms. Taking
Sweden as an example: in its biannual Financial Stability Report, the Riksbank outlines
several alternatives for how the growing risks associated with increasing household debt may
be managed.
The second issue that needs to be addressed is how macroprudential policy should interact
with other policy areas when it comes to tackling systemic risk. My view is that monetary
policy could take systemic risk into consideration under the precondition that this doesn't
conflict with the objects of monetary policy. That is, if the object of monetary policy is inflation
targeting, monetary policy may very well serve as a line of defence if inflation is not too far
from the target and if inflation expectations are firmly anchored.1
However, macroprudential policy also has links to microprudential policy and fiscal policy. All
these policy areas may need to be involved in order to curb systemic risks in the most
effective way. What instrument to choose in a specific situation should depend on the
problem at hand and the purpose of the policy action. The most effective tool may not always
be in the hands of the macroprudential supervisor.
Finally, in the past few years, macroprudential tools have been developed to tackle risk
stemming from the traditional banking sector. Macroprudential policy has thus mainly been
implemented as a form of banking regulation. As a consequence, resilience in that sector has
increased. But, on the other hand, the non-banking sector is increasing rapidly and so, most
likely, is risks related to it. This being my third and final issue, I think it is most important that
we increase our understanding of these changing trends and the risks they entail, and that
we start developing macroprudential instruments that can counteract these risks. In order not
to fall behind the curve, work on developing new tools should start promptly, as it will take
years before such instruments can be in place at national levels.