Macroprudential policy and quantitative instruments: a European historical perspective

From 1945 to the 1970s, rather than steering interest rates, European central banks used a variety of quantitative instruments to attain their targets in terms of monetary aggregates and credit, and as part of selective credit policies. A number of the tools currently being referred to as macroprudential (loan to value ratio, reserve requirements, liquidity ratio, etc.) thus have historical precedents, which this article sets out to examine. The objectives pursued in the past were not always the same as those being used to justify the implementation of macroprudential policies today. However, the instruments were used in part to modulate the expansion of credit and direct it towards specific sectors, as well as to control bank liquidity levels in an effort to secure financial stability. A historical perspective can thus help to shed some light on how prudential instruments can complement or, on the contrary, conflict with monetary policy. But this article also argues that historical comparisons need to be regarded with caution, as the financial and economic sectors have undergone radical changes, as have the institutional framework and objectives of monetary policy.