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Macroprudential policy in the EU: A political economy perspective

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  • Bengtsson, Elias

Abstract

In response to the lessons of the global financial crisis, macroprudential policy is now firmly established as a financial policy area to prevent excessive risk taking in the financial sector and mitigate its effects on the real economy. However, macroprudential policy is facing several challenges relating to its political sensitivity and institutional context. These include political and interest group resistance, weaknesses in the governance framework, and limited institutional memory among policy makers. This article seeks to contribute to the contextual understanding of macroprudential policy by exploring how factors relating to these challenges influence policy in the EU. More specifically, it develops and empirically tests a number of hypotheses on how wider institutional and structural factors influence the actual use of macroprudential measures across Europe. The findings yield considerable support for theoretical predictions that institutions and contexts matter - Political pressure and interest group resistance tend to influence the intensity of macroprudential policy stances. Weaker policy stances characterise countries where banking systems depend on domestic banks, whereas the opposite holds for financial systems with significant market shares of other financial intermediaries. Results on institutional arrangements show that governance arrangements on relating to transparency influence policy stances. The results also indicate that policy makers' inertia is best counteracted by appointing a single macroprudential authority. The results differ somewhat depending on whether countries are based in the Euro zone or not. This suggests that policy frameworks that are multi-layered and complex pose tricky conundrums on how to ensure sufficient institutional autonomy, policy capacity and discretion among macroprudential authorities. This also has implications on other policy areas macroprudential policy, such as microprudential policy, crisis management and fiscal policy.

Suggested Citation

  • Bengtsson, Elias, 2020. "Macroprudential policy in the EU: A political economy perspective," Global Finance Journal, Elsevier, vol. 46(C).
    • Handle: RePEc:eee:glofin:v:46:y:2020:i:c:s1044028318302953
    DOI: 10.1016/j.gfj.2019.100490
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    2. Franziska Bremus & Lukas Menkhoff, 2021. "Eigenkapitalpuffer im Abschwung wirksam? [Are Equity Buffers Effective During the Eonomic Downturn?]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(3), pages 207-212, March.
    3. Martin Hodula & Ngoc Anh Ngo, 2021. "Does Macroprudential Policy Leak? Evidence from Non-Bank Credit Intermediation in EU Countries," Working Papers 2021/5, Czech National Bank.
    4. Lukas Menkhoff, 2022. "Der antizyklische Kapitalpuffer: Reformoptionen [Reform Options for the Countercyclical Capital Buffer]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(1), pages 59-63, January.
    5. Roy, Saktinil, 2022. "What drives the systemic banking crises in advanced economies?," Global Finance Journal, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Political economy; Macroprudential policy; Banking regulation; Government policy and regulation; Financial institutions and services;
    All these keywords.

    JEL classification:

    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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