Makhlouf: Macroprudential policy must evolve with new risks
Central Bank of Ireland Governor Gabriel Makhlouf emphasized the need for macroprudential policy frameworks to evolve with rapid changes in the financial system. Speaking at the 10th Annual Macroprudential Conference, he highlighted emerging risks in non-bank finance and digital currencies.
Maturity must not mean complacency
Since its inception in 2015, macroprudential policy has evolved from a nascent discipline into an established component of financial frameworks.
Governor Makhlouf emphasized that this maturity must not lead to complacency, especially given the rapid changes in the financial system.
He cited the Silicon Valley Bank failure as a stark reminder that vulnerabilities can accumulate unnoticed beneath seemingly reassuring indicators, highlighting the critical need to distinguish between reacting to losses and proactively responding to risks.
The Governor noted that traditional boundaries of financial policy are blurring, with risks shifting between banks and non-banks, across markets and jurisdictions, and between conventional and digital finance, including stablecoins and cryptocurrencies.
This dynamic environment necessitates a continuous evolution of regulatory frameworks to prevent shocks from being amplified by the financial system.
Building resilience before it's needed
Ireland's experience with financial instability underscored the value of building resilience proactively.
Makhlouf highlighted how the country's macroprudential framework, established over a decade ago, now incorporates borrower-based measures, bank capital buffers, and specific policies for non-bank finance.
These tools aim to reduce the likelihood of systemic amplification and ensure essential services continue during shocks.
Identifying risks within individual institutions is only part of the challenge.
Understanding the interconnected network, amplification effects, and how risks are financed and move under stress is crucial, requiring robust data, sound models, and effective supervision.
Cooperation is the new frontier
Governor Makhlouf's remarks underscore that no central bank can tackle these complex, interconnected risks alone.
His call for enhanced research, international cooperation, and continuous adaptation is a pragmatic recognition of the globalized and rapidly changing financial landscape.
This collaborative approach is crucial for building a resilient system capable of absorbing future shocks.