Monetary Policy and Its Role in Financial Stability: Macro Prudential Policy Tools, and the Need for Leverage Ratios in the Risk Based Capital Adequacy Framework
Centre & Institute for Innovation and Sustainable Development Economic Review, Forthcoming
12 Pages Posted: 7 Jul 2019
Date Written: July 3, 2019
As well as highlighting why macro prudential policy tools serve as vital complements to monetary policy tools, this paper aims to highlight why the question relating to the suitability of monetary policy as a tool for facilitating financial stability has constituted a topic of contentious debates in several spheres.
The introduction of the 2010 Basel III leverage ratios was intended not only to address shortcomings of the previous Basel capital framework, but also intended to serve as a complement to the risk based capital adequacy framework. However, as with many implementation challenges, other issues which involve calibration between the risk based and leverage based frameworks continue to constitute areas of concern for regulators – and supervisors. So also matters relating to disclosures – as evidenced by ongoing initiatives in respect of Pillar 3.
This paper also aims to highlight progress and developments being made since 2010 – as well as accentuate challenges still being encountered by the leverage based framework. Herein lies the importance of continued collaborative efforts aimed at facilitating comparability, consistency, understanding and communication between national and federal regulators and supervisors from different jurisdictions – in efforts aimed at realizing not just Basel III initiatives and objectives, but also the Federal Reserve’s dual mandate of price stability and maximum employment.
Keywords: monetary policy, liquidity ratios, leverage ratios, risk based capital adequacy measures, disclosures, supplementary leverage ratios, enhanced supplementary leverage ratios, Federal Reserve Board, counter cyclical buffers, conservative buffers, inflation
Suggested Citation: Suggested Citation