Question

Identify the intermediate objectives for macro prudential policy that have been put forward by the European Systemic Risk Board. Provide a rationale for each of these objectives. Provide detailed examples of their introduction in Basel 3 and by regulatory authorities.

Answer 1

Ans. The objective of macro-prudential policy is to
limit systemic risk. The rationale behind this objective is to minimise the costs that financial instability can impose on the overall economy.

Limiting the systematic risk can enhance the ability of the financial system by addressing the risks emerge from the close interactions between financial institutions and building up financial imbalances over time.

Image shows the example of their introduction in Basel 3 and by regulatory authorities.