Macroprudential ring-fencing

Abstract

Purpose

This paper aims to focus on capital-related macroprudential policies in the context of recent policy discussions on the removal of barriers to the mobility of capital and liquidity of cross-border banks in the European Union (EU).

Design/methodology/approach

This study first discusses the link between financial stability and internal resource mobility of cross-border banks. Then, it examines past heterogeneity in structural capital buffers as key macroprudential capital instruments applied in the EU and relate them to costs of policy action, degree of foreign penetration and membership in the Banking Union.

Findings

Observed phase-in patterns of structural capital buffers in the EU are broadly consistent with costs of policy action, degree of foreign penetration and membership in the Banking Union as potential factors. The process of financial integration could be further enhanced through reduced uncertainty in the application of macroprudential policies that constrain capital mobility of cross-border banks.

Originality/value

This paper anchors macroprudential policies into a wider discussion on the mechanism and implications of ring-fencing in the EU over time. It discusses two policy areas, macroprudential policies and proposals for deeper financial integration, that share the same financial stability objective but tend to emphasize different implications of the mobility of capital and liquidity of cross-border banks in the EU. The study provides a discussion of potential implications of the recent adoption of the CRRII/CRDV legislation for future heterogeneity of macroprudential policies in the EU.

Citation

Konečný, T. and Pfeifer, L. (2021), "Macroprudential ring-fencing", Journal of Financial Regulation and Compliance, Vol. 29 No. 2, pp. 125-142. https://doi.org/10.1108/JFRC-10-2019-0122