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Macroprudential Analysis

What is 'Macroprudential Analysis'

A method of economic analysis that evaluates the health, soundness and vulnerabilities of a financial system. Macroprudential analysis looks at the health of the underlying financial institutions in the system and performs stress tests and scenario analysis to help determine the system's sensitivity to economic shocks. Macroeconomic and market data are also reviewed to determine the health of the current system. The analysis also focuses on qualitative data related to financial institutions' frameworks and the regulatory environment to get an additional sense of the strength and vulnerabilities in the system.

Explaining 'Macroprudential Analysis'

When looking at the health of the underlying financial institutions in the system, macroprudential analysis uses indicators that provide data on the health of these institutions as a whole including capital adequacy, asset quality, management performance, profitability, liquidity and sensitivity to systematic risks. Macroeconomic data used includes gross domestic product (GDP) growth rates, inflation, interest rates, balance of payments, exchange rates, asset prices and the correlation of markets within the system. Finally, macroprudential analysis looks at key components of the financial markets, including prevailing credit ratings and the yields and market prices of financial instruments.

Scenario analysis and stress tests are major component of this analysis. For example, the analysis may look at how the system would cope with a steadily declining currency value and its impact on GDP, interest rates and underlying institution profitability.


Further Reading


Macro-financial stability and macroprudential analysis
www.questia.com [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …

Early warning indicators for the German banking system: a macroprudential analysisEarly warning indicators for the German banking system: a macroprudential analysis
papers.ssrn.com [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …

Macroprudential and monetary policies: Implications for financial stability and welfareMacroprudential and monetary policies: Implications for financial stability and welfare
www.sciencedirect.com [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …

Financial crises and macro-prudential policiesFinancial crises and macro-prudential policies
www.sciencedirect.com [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …

A macroprudential approach to financial regulationA macroprudential approach to financial regulation
www.aeaweb.org [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …

Macroprudential analysis of residential real estate marketsMacroprudential analysis of residential real estate markets
ideas.repec.org [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …

Towards a macroprudential framework for financial supervision and regulation?Towards a macroprudential framework for financial supervision and regulation?
academic.oup.com [PDF]
… its information about the financial system, including a number of macro-prudential indicators of … B, A Rose and C Wyplosz (1996), "Contagious Currency Crises," Scandinavian Journal of Economics 463-84 … IMF (2001) "Macroprudential analysis - Selected issues" IMF (forthcoming …



Q&A About Macroprudential Analysis


How does one use Macro-Prude""ncial Analysis ?

You can use Macro-Pruden""al Analysis by looking at historical data , current trends , future projections , etc . You can also look at past events such as recessions , depressions , etc . This information will help you determine what could possibly happen if certain circumstances occur again

Who uses macro-Prudential Analysis?

Macro-Prudential Analysis can be used by central banks, regulators, government agencies and even private sector companies who want to make sure their business will not suffer from a potential change in economic conditions or interest rates for example .

What is macroprudential regulation?

Macroprudential regulation is the approach to financial regulation that aims to mitigate risk to the financial system as a whole.

What does macroprudential analysis entail?

Macro-Prudential Analysis entails analyzing how individual banks affect each other by using tools such as stress tests or scenario analysis. It also includes looking at how different sectors within an economy interact with each other during times of crisis or when there are changes in interest rates or exchange rates.

Why do you need macroprudential regulation?

There are many reasons why you need macroprudential regulation. One of them is because it helps regulate systemic risk. Another reason is that it helps prevent and mitigate crises in an economy.

How do you measure capital adequacy with macroprudential analysis?

Capital adequacy is measured using indicators that provide data on overall institution performance including asset quality, management performance, profitability, liquidity and sensitivity to systematic risks.

What kind of indicators are used for measuring capital adequacy?

Indicators include measures such as leverage ratios, loan-to-deposit ratios, nonperforming loans/total loans ratio or other measures based on risk weights assigned by regulators.

What kind of indicators are used for measuring management performance with macroprudential analysis ?

Indicators include return on assets (ROA), return on equity (ROE), operating expenses/revenue ratio or other measures based on risk weights assigned by regulators .

What kind of indicators are used for measuring asset quality with macroprudential analysis?

Indicators include delinquency rates (90 days past due), charge offs (loans written off) or other measures based on risk weights assigned by regulators.

How does macroprudential analysis evaluate the health of underlying financial institutions in a system?

Macroeconomic data are reviewed to determine the health of these institutions as well as qualitative data related to their frameworks and regulatory environment.

When did the term "macroprudential" first appear?

The term "macroprudential" was first used in unpublished documents of the Cooke Committee (the precursor of the Basel Committee on Banking Supervision) and the Bank of England in 197s, but only after two decades of recurrent financial crises in industrial and, most often, emerging market countries did authorities at both institutions begin promoting this approach more widely.

What is macroprudential analysis?

Macroprudential analysis is a method of economic analysis that evaluates the health, soundness and vulnerabilities of a financial system.

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