IMF promotes macroprudential policies to prevent financial crises

Sep 19, 2013

The International Monetary Fund has developed a new framework to guide countries as they choose various policies to protect their financial system and help avoid a repeat of the global crisis.

The International Monetary Fund has developed a new framework to guide countries as they choose various policies to protect their financial system and help avoid a repeat of the global crisis.

"This framework is the culmination of a multi-year policy development effort," said José Viñals, Financial Counsellor to the IMF's Managing Director. "It is a milestone for the IMF and its member countries because it will help them develop essential crisis-prevention tools."

The policies recommended by the IMF, known as
macroprudential
policies
, can include measures such as loan-to-value ratios to stop excessive mortgage borrowing, or additional capital to increase banks' resilience to economic shocks.

Countries can use the policies to help rein-in excessive lending when the economy is heating up, and then relax the policies in response to adverse shocks, according to the IMF.

Effective
macroprudential
policy requires the ability to assess risks to the financial system as a whole, assemble and deploy the right tools to reduce such risk, adjust the scope of financial regulations, and close data and information gaps. It also requires strong institutions to manage the policies, and the IMF analysis suggests that central banks should play a key role.

Over the next few years, the institution will use the new framework to step up its dialogue with national officials, including through its bilateral surveillance, financial sector assessment programs and technical assistance.ADNFCR-2976-ID-801639301-ADNFCR