Sources of systemic risk, transmission mechanisms and macroprudential instruments
Sources of systemic risk and macroprudential instruments
| Systemic Risk: | Excessive credit growth and leverage | Excessive maturity mismatch and market illiquidity | Exposure concentrations | Misaligned incentives | ||||
|---|---|---|---|---|---|---|---|---|
| Key instruments | Counter-cyclical capital buffer | Capital instruments: - leverage ratio - by sector (real estate, intra-financial) - systemic risk buffer |
Loan-to-value / loan-to-income caps | Stable funding restrictions (e.g., NSFR, LTD) | Liquidity charges | Large exposure restrictions (by counterparty, sector, geographic) | SIFI capital surcharges (G- SII and O-SII buffer) | Systemic risk buffer |
| Transmission channels | Resilience of banks; contribute to curbing excessive (sectoral) credit growth | Resilience of borrowers and banks, mitigate pro-cyclicality mortgage credit | Resilience of funding base to stressed outflows | Resilience to counterparty and concentration to sectors | Lower probability and impact of failure of SIFIs; increased resilience of banks | |||
Source: ESRB ( Flagship Report on Macro-prudential Policy in the Banking Sector, Table 3 (external link) )