IDEAS home Printed from https://ideas.repec.org/p/fip/fedbqu/rpa15-1.html
   My bibliography  Save this paper

Macroprudential Policy: Case Study from a Tabletop Exercise

Author

Listed:
  • Tobias Adrian
  • Patrick de Fontnouvelle
  • Emily Yang
  • Andrei Zlate

Abstract

Since the global financial crisis of 2007-09, policy makers and academics around the world have advocated the use of prudential tools for macroprudential purposes. This paper presents a macroprudential tabletop exercise that aimed at confronting Federal Reserve Bank presidents with a plausible, albeit hypothetical, macro-financial scenario that would lend itself to macroprudential considerations. In the tabletop exercise, the primary macroprudential objective was to reduce the likelihood and severity of possible future financial disruptions associated with the hypothetical overheating scenario. The scenario provided a path for key macroeconomic and financial variables, which were assumed to be observed through 2016:Q4, as well as the corresponding hypothetical projections for the interval from 2017:Q1 to 2018:Q4. Prudential tools under consideration included capital-based tools such as leverage ratios, countercyclical capital buffers, and sectoral capital requirements; liquidity-based tools such as liquidity coverage and net stable funding ratios; credit-based tools such as caps on loan-to-value ratios and margins; capital and liquidity stress testing; as well as supervisory guidance and moral suasion. In addition, participants were asked to consider using monetary policy tools for financial stability purposes. Under the hypothetical scenario, participants found many prudential tools less attractive due to implementation lags and limited scope of application and favored those deemed to pose fewer implementation challenges, such as stress testing, margins on repo funding, and guidance. Also, monetary policy came more quickly to the fore as a financial stability tool than might have been thought before the exercise. The tabletop exercise abstracted from governance issues within the Federal Reserve System, focusing instead on economic mechanisms of alternative tools.

Suggested Citation

  • Tobias Adrian & Patrick de Fontnouvelle & Emily Yang & Andrei Zlate, 2015. "Macroprudential Policy: Case Study from a Tabletop Exercise," Supervisory Research and Analysis Working Papers RPA 15-1, Federal Reserve Bank of Boston, revised 30 Sep 2015.
  • Handle: RePEc:fip:fedbqu:rpa15-1
    as

    Download full text from publisher

    File URL: https://www.bostonfed.org/publications/risk-and-policy-analysis/2015/macroprudential-policy-case-study-from-a-tabletop-exercise.aspx
    File Function: Summary
    Download Restriction: no

    File URL: https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/qau1501.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Beverly Hirtle & Til Schuermann & Kevin J. Stiroh, 2009. "Macroprudential supervision of financial institutions: lessons from the SCAP," Staff Reports 409, Federal Reserve Bank of New York.
    2. Akinci, Ozge & Olmstead-Rumsey, Jane, 2018. "How effective are macroprudential policies? An empirical investigation," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 33-57.
    3. Roland I. Robinson, 1950. "A New Supervisory View Of Bank Capital," Journal of Finance, American Finance Association, vol. 5(1), pages 95-109, March.
    4. Boneva, Lena & Harrison, Richard & Waldron, Matt, 2015. "Threshold-based forward guidance: hedging the zero bound," Bank of England working papers 561, Bank of England.
    5. G. L. Bach, 1949. "Bank Supervision, Monetary Policy, And Governmental Reorganization," Journal of Finance, American Finance Association, vol. 4(4), pages 269-285, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Verona, Fabio & Martins, Manuel M.F. & Drumond, Inês, 2017. "Financial shocks, financial stability, and optimal Taylor rules," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 187-207.

    More about this item

    Keywords

    tabletop exercise; financial overheating; macroprudential policy; monetary policy; Financial stability;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedbqu:rpa15-1. 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: (). General contact details of provider: http://edirc.repec.org/data/frbbous.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.