IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Preventive macroprudential policy

  • Goodhart Charles A.E.
  • Perotti Enrico

This piece discusses the framework for macroprudential policy in concrete terms. It raises three points. It makes a strong case for preventive tools over ex-post intervention, seeking to complement the Basel III individual buffer approach by targeting risk externalities. Next, it discusses a ladder of enforcement tools for fixed prudential standards, and possible new tools, which are more flexible. To avoid forbearance, we suggest prioritizing a timely use of low adjustment cost instruments. These can be escalated or toned down as required to nudge intermediaries towards capital and stable funding norms. We suggest combining flexible instruments with robust medium term standards, to minimize resistance to adjustment along the credit cycle, while ensuring a rapid effect on risk incentives. Flexible tools can thus help maintain the commitment to robust standards, while allowing fine tuning of the transition according to market conditions. Finally, borrowing from organization theory, this paper argues for a contingent governance framework for macroprudential councils that assigns pre-eminence to different authorities depending on the specific emergency. Specifically, we argue for: assigning to microprudential regulators' tools for the implementation of liquidity and capital ratios; to macroprudential authorities within central banks tools for aggregate liquidity risk management, including charges for unstable funding; and to fiscal authorities overall control once capital support requires fiscal means.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

File URL:
Download Restriction: no

Article provided by Società editrice il Mulino in its journal Journal of Financial Management, Markets and Institutions.

Volume (Year): (2013)
Issue (Month): 1 (January)
Pages: 71-85

in new window

Handle: RePEc:mul:jdp901:doi:10.12831/73635:y:2013:i:1:p:71-85
Contact details of provider:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," Tinbergen Institute Discussion Papers 11-040/2/DSF15, .
  2. Markus K. Brunnermeier & Gary Gorton & Arvind Krishnamurthy, 2012. "Risk Topography," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 149 - 176.
    • Markus K. Brunnermeier & Gary Gorton & Arvind Krishnamurthy, 2011. "Risk Topography," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 149-176 National Bureau of Economic Research, Inc.
  3. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," DNB Working Papers 291, Netherlands Central Bank, Research Department.
  4. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," Tinbergen Institute Discussion Papers 11-040/2/DSF15, .
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mul:jdp901:doi:10.12831/73635:y:2013:i:1:p:71-85. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.