Peter Vanham, Senior Media Manager, Public Engagement, Tel.: +41 79 620 91 29; peter.vanham@weforum.org
New York, USA – Fifteen CEOs, Chairmen and senior executives of large financial institutions in Europe and North America expressed their support of macroprudential policies as a potential tool for achieving the right balance between financial stability and economic growth.
The statement was developed and published by the World Economic Forum (“Forum”) in collaboration with Oliver Wyman and discussed at the Forum’s 2015 Annual Meeting in Davos among financial leaders in the private and public sectors and representatives of civil society. Matthew Blake, Head of Banking & Capital Markets Industry, highlighted that “the group hopes that this statement will contribute to the ongoing dialogue between policy-makers, industry participants, academics and society at large on the right balance between financial stability and economic growth.”
In the wake of the financial crisis and the Great Recession, the regulatory debate has focused on reforms that would ensure financial stability, including macroprudential policies. Macroprudential regulation is the use of primarily prudential tools to limit systemic risk and to ensure the right balance between financial stability and economic growth. Those policies are either structural and in effect at all times (e.g. rules on proprietary trading, ring-fencing of certain activities) or time-varying, with the purpose of constraining excessive credit build-up (e.g. loan-to-value caps). “As monetary policy is constrained by the zero lower bound, the recent re-emergence of macroprudential policies should prove to be a useful addition to the regulators’ toolbox to address financial imbalances”, explained Nick Studer, Managing Partner of the Financial Services practice group of Oliver Wyman.
In the statement, the group expressed its commitment to ensuring financial stability and supported the role of macroprudential policies within a holistic approach to financial regulation. For Douglas Flint, Group Chairman of HSBC, “one of the most significant features of the post crisis retrospective was recognition of the potential role of macroprudential policy in identifying and addressing systemic risk, and providing a coherent framework for the prudential initiatives required to balance financial stability with sustainable economic growth.”
The group also highlighted the limits of our current knowledge of the impact of macroprudential policies, the known and unknown risks that they may generate, and the trade-offs that society will be faced with, and urged all stakeholders to proceed with caution. According to Axel Weber, Chairman of UBS and former president of the German Bundesbank, “macroprudential policies could play a critical role in ensuring financial stability in the future if its governance and potential side effects are managed adequately.”
While significant progress has been made to date, the group agrees that more research is required to ensure that macroprudential tools are effective and do not generate additional risks. An incremental approach involving prudent experimentation is suggested. Michel Liès, CEO of Swiss Re, agrees that “macroprudential policies could support financial market stability and thus long-term investors’ ability to provide risk capital to the real economy. Applying a one-size-fits-all approach, however, should be avoided and unintended consequences monitored.”
Notes to Editors
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