vitor constancio : principles of macroprudential policy speech by mr vitor constancio, vice - president of the european central bank, at the ecbimf conference on macroprudential policy, frankfurt am main, 26 april 2016. * * * ladies and gentlemen, it is with great pleasure that i host this dinner today, in the first edition of our annual macroprudential conference, this time jointly organised with the imf. the single supervisory mechanism regulation 1 confers upon the ecb and national competent authorities or national designated authorities specific powers and responsibilities in the field of macroprudential policy. this calls for substantive conceptual and analytical work in this new policy area which is very ambitious, requiring considerable research efforts that we want to stimulate by launching this series of annual conferences. the financial crisis and its aftermath confirmed the need for system - wide surveillance and led to the establishment of macroprudential policy as a new policy area with the objective of addressing systemic risk. at the european central bank ( ecb ), systemic risk is defined “ as the risk that financial instability significantly impairs the provision of necessary financial products and services by the financial system to a point where economic growth and welfare may be materially affected ”. 2 important in this concept is the fact that the materialisation of systemic risk brings along significant costs to the real economy – implying the destruction of economic value and leading to losses in terms of economic growth. the literature has identified three broad sources of systemic risk : ( i ) macroeconomic shocks that are significant enough to cause distress in the financial system, ( ii ) the unwinding of imbalances in the financial system generated by excessive leverage, and ( iii ) contagion risk, created by increasing interconnectedness and herd behaviour. whatever the origin, the primary role of macroprudential authorities is to identify, measure and reduce systemic risk. identification of risks clearly needs to be probabilistic, attempting to predict the level of overall risk of the system in different scenarios. many indicators to measure systemic risk have been proposed since 2008. many of them though, have a “ micro - level ” dimension dedicated to calculate the contribution of significant institutions to systemic risk. the marginal expected shortfall ( mes ), covar, corisk or conditional tail risk ( crt ), for example, fall under this category. 3 taken in isolation, they are not useful to predict future levels of systemic risk, as they

, assessing macroprudential measures in a consistent manner requires accounting for spillovers, including to the real economy, also taking account of their impact on various sectors as well as layers of interaction between those sectors. conclusion let me conclude. the ecb has been working hard on developing analytical tools for the effective implementation of macroprudential policy. the ecb ’ s new legal competences in macroprudential policy relate primarily to the power to top - up measures adopted by national authorities and the assessment of possible spillovers to other countries in connection with the reciprocity principle laid down in the legislation. in this vein, the ecb has been analysing the numerous macroprudential measures adopted by member states that, so far, we have decided not to aggravate. concerning the governance framework, we have created an internal macroprudential coordination group and established the macroprudential forum – integrating the governing council and the supervisory board – to discuss all matters related to financial stability and macroprudential policy. we are taking our new responsibilities very seriously. the robustness of our assessments is key and, for this reason, analytical and research work in the macroprudential policy area has been stimulated and has been fruitful, as evident in my gross, m. and j. poblacion, ( 2015 ), “ assessing the efficacy of borrower - based macroprudential policy using an integrated micro - macro model for european households ”, ecb working paper no. 1881. see also ampudia, m., h. van vlokhoven and d. zochowski, ( 2016 ), “ financial fragility of euro area households ”, journal of financial stability, forthcoming ; see also : ecb working paper series no. 1737. for details, see the household finance and consumption network webpage, https : / / www. ecb. europa. eu / pub / economic - research / research - networks / html / researcher _ hfcn. en. html. bis central bankers ’ speeches remarks. since march this year, the ecb started publishing a macroprudential bulletin 18 that will inform about the analytical work being done, the policy decisions adopted and assessed, as well as analysis of relevant regulatory developments. this will further contribute to enhance transparency in our assessments. we look forward to maintaining a lively dialogue with the community of people in official institutions, in the financial sector and in academia who are interested in the