BULLETIN ECB (2016) MACROPRUDENTIAL BULLETIN ISSUE 1, 2016 - Macroprudential Bulletin Issue 1 2016 March 2016 Contents Foreword Chapter 1 Topical issue


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Macroprudential Bulletin Issue 1 / 2016 March 2016
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Macroprudential Bulletin, Issue 1 / 2016, March 2016 2 Contents Foreword Chapter 1 Topical issue: The ECB’s macroprudential policy framework The SSM Regulation gives the ECB specific responsibilities in the field of macroprudential policy, including the power to tighten macroprudential policies at national level. This chapter provides a broad overview of the ECB’s macroprudential policy framework, including its institutional set-up, the policy objectives and the instruments available. Chapter 2 Macroprudential policy analysis and tools Section 2.1 Capital requirements in a model for the SSM area with three layers of default As part of its new responsibilities in the area of macroprudential policy, the ECB determines what it considers to be the adequate level for macroprudential capital requirements and assesses the costs and benefits of changes to capital buffers. It does this using a model developed by a team of researchers from the European System of Central Banks’ Macroprudential Research Network (MaRS). This model shows that the optimal level of capital requirements is a level which balances the costs linked to more expensive equity funding with the benefits of a lower rate of bank defaults. Section 2.2 A model of the euro area household sector for stress testing and assessing the efficacy of lending standard-related macroprudential policy measures The ECB has developed a first prototype of an integrated micro-macro model that can be used for assessing the efficacy of borrower-based macroprudential instruments, namely loan-to-value (LTV) ratio and debt service to income (DSTI) ratio caps. The model framework allows the ECB to quantify both the impact on banks’ capital positions and the macroeconomic feedback effects that would result from the policy-induced reduction of demand for mortgage loans. Section 2.3 A bank-level early warning model and its uses in macroprudential policy Early and accurate identification of risks is an essential first step in the process of setting macroprudential policy. The ECB has therefore developed a bank early warning model (BEWM) that can be used to identify both vulnerabilities in individual systemically important banks and vulnerabilities that build up simultaneously across a number of banks at euro area or country level. Annexes Macroprudential policy measures at a glance Glossary
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