Advisory Scientific Committee of ESRB publishes a report on global dimensions of macroprudential policy

11 February 2020

The Advisory Scientific Committee of the European Systemic Risk Board has today published a report on the risk channels associated with international financial integration for EU economies. It also provides an overview of the macroprudential policy options that are available to address these risks.

Research supports the existence of a global financial cycle in capital flows, asset prices and credit. The global financial cycle influences domestic financial cycles and increases the vulnerability of domestic economies to external shocks from core economies (particularly from the United States but also from China, Japan, the United Kingdom and the euro area).

Due to their cross-border activities, global banks play an important role as generators, transmitters and receivers of global systemic risk. Moreover, non-bank financial institutions’ activities and interconnections have also started to influence the dynamics of the global financial cycle. While one main objective of the regulatory reform following the global financial crisis was for global banks to absorb the externalities created by their cross-border activities, the report calls for closer monitoring also of the activities of global non-bank financial institutions, particularly in terms of their interaction with global systemic risk.

From the perspective of a domestic economy, existing empirical evidence points to the effectiveness of macroprudential measures (e.g. capital buffers, borrower-based measures) in boosting resilience to dampen the transmission of the global financial cycle to domestic economies. Additionally, increased international cooperation in the field of macroprudential policy would address possible spillovers of these measures.

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