The macroprudential authority: powers, scope, and accountability

Neither the achievement of price stability nor the implementation of microprudential supervision led to overall financial stability. There is a gap that needs to be filled by a macroprudential authority (MPA), which must have the following powers: to modify the composition of the central bank’s assets; to adjust margins (ratios) to influence the behavior of financial intermediation; to propose tax amendments that affect financial intermediation; and to be required to comment on proposals originating from other sources. It is argued that the MPA should be under the supervision of the central bank, which should be responsible for crisis prevention in an operationally independent manner, while crisis resolution should be the responsibility of the Treasury. The key issue is how to ensure the MPA is held accountable. It is proposed that a set of “trigger indicators” be adopted, which, when activated, would require the AMP to take corrective measures or explain why such measures are not necessary. (Audio: Department of Economic Publications)