Implementing macroprudential policies: the Swiss approach

The global financial crisis has highlighted the need for a regulatory framework that directly addresses systemic risk. Such a macroprudential approach to financial regulation focuses on enhancing the resilience of the financial system to adverse shocks and on preventing the build-up of systemic risk in the course of a credit cycle. Taking the viewpoint of a central bank, this article discusses how a macroprudential framework can be built. It points to the key challenges the implementation of such policies presents. In doing so, it draws on the recent experience of Switzerland. First, the key objectives of the macroprudential approach are explained, highlighting that macroprudential policies should be seen as complementary to monetary policy and microprudential regulation in the pursuit of the twin goals of price and financial stability. Second, it is argued that macroprudential policy is a shared responsibility among all authorities involved in fostering financial stability. Different institutional settings are conceivable. In any setting, however, central banks should play a key role in defining and implementing macroprudential policies. Third, the article hints at the significant uncertainties linked to the use of macroprudential instruments, and describes the Swiss approach in dealing with these challenges, with a particular focus on the countercyclical capital buffer.