In addition to microprudential supervision, where supervision is conducted on an institution-specific level, macroprudential supervision of the financial markets is playing an increasingly important role. Macroprudential supervision is the forward-looking analysis and identification of risks to the stability of the financial system as a whole. Macroprudential supervision investigates risks that may arise as a result of the interconnectedness of institutions in the financial sector or from reciprocal effects between the financial and real economy. In addition, macroprudential supervision addresses fundamental issues connected to incentive problems in the financial system, as well as potential risks that may arise from the inherent procyclicality of the financial system.
Macroprudential supervision, the aim of which is to ensure financial market stability for the financial market as a whole, complements microprudential supervision, the latter’s task being to monitor the situation and solvency of individual institutions.
The structure of macroprudential supervision
On a national level, the Financial Market Stability Board (FMSB) plays a central role. It meets at regular intervals, analyses potential risks for the Austrian financial market and, if required, issues risk warnings or recommendations. The members of this body are the Federal Ministry of Finance (Chair), the Financial Market Authority (FMA), the Oesterreichische Nationalbank (OeNB) and the Fiscal Advisory Council.
The Financial Market Authority (FMA) is the competent authority for macroprudential banking supervision, and in the event of specific recommendations being made by the Financial Market Stability Board (FMSB), is required to comply with them by means of a comply-or-explain mechanism. This means that either the specific recommendations are fulfilled, or a detailed explanation must be given why these recommendations cannot be fulfilled. The Oesterreichische Nationalbank (OeNB) provides support to the Financial Market Authority (FMA) by providing analysis reports and opinions.
At European Union level, the European Systemic Risk Board (ESRB) is responsible for macroprudential supervision. Although it is housed in the European Central Bank (ECB) it acts independently. In a similar way to the Financial Market Stability Board (FMSB), the European Systemic Risk Board (ESRB) may also issue public or non-public warnings or recommendations, which may be addressed to the European Union as a whole, to individual Member States or to national or European supervisory authorities. The implementation of such recommendations is also monitored by means of a comply-or-explain mechanism.
The instruments of macroprudential supervision
If a systemic risk is identified, then suitable instruments are required to reduce it. In banking supervision the competent authorities have a range of possible instruments at their disposal, such as additional capital buffers or increased risk weights. These instruments are prescribed and harmonised in the Capital Requirements Directive IV (CRD IV). There are currently no harmonised instruments available in the non-banking sector. Further information may also be found here.