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Central banks and macroprudential policy. Some reflections from the Spanish experience

Author

Listed:
  • Enrique Alberola

    () (Banco de España)

  • Carlos Trucharte

    () (Banco de España)

  • Juan Luis Vega

    () (Banco de España)

Abstract

The view that central banks must play a greater role in preserving financial stability has gained considerable ground in the aftermath of the crisis and macroprudential policy has become a central pillar to deal with financial stability. The policy frame of macroprudential policy, its toolbox and interactions with other policies is not completely established yet, though. In this context, Spain’s ten-year experience with its dynamic provision is a key reference. The analysis shows that, during the current financial crisis, dynamic provisions have proved useful to mitigate —to a limited extent— the build-up of risks and, above all, to provide substantial loss absorbency capacity to the financial institutions, suggesting that it could be an important tool for other banking systems. However, it is not the macro-prudential panacea: it needs to be complemented and be consistent with the rest of policies, either within the macro-prudential or in the broader context of macroeconomic management, including monetary policy. While there is a higher awareness of the contribution of monetary policy to financial stability, its role is in practice limited. The case of the euro area is particularly telling in this respect: macro-financial imbalances developed in sectors where financial integration was low and the effects hence were confined to the domestic economies. The asymmetry between a supranational monetary policy plus macroprudential surveillance and domestic implementation of macroprudential policies raises a set of issues which are worth exploring.

Suggested Citation

  • Enrique Alberola & Carlos Trucharte & Juan Luis Vega, 2011. "Central banks and macroprudential policy. Some reflections from the Spanish experience," Occasional Papers 1105, Banco de España;Occasional Papers Homepage.
  • Handle: RePEc:bde:opaper:1105
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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/11/Fich/do1105e.pdf
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    References listed on IDEAS

    as
    1. Detken, Carsten & Alessi, Lucia, 2009. "'Real time'early warning indicators for costly asset price boom/bust cycles: a role for global liquidity," Working Paper Series 1039, European Central Bank.
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    More about this item

    Keywords

    Macroprudential policy; Dynamic provision; Central banks;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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