Macroprudential Analysis
Categories: Metrics, Financial Theory
The macroeconomic doctor’s in. What’s your capital looking like? How’s your asset quality? Let’s do a stress test, and maybe measure GDP and liquidity too...just to get a full macroprudential analysis.
Macroprudential analysis measures the overall health of an economy, which includes analyzing how strong and how vulnerable an economy’s financial system is. Macroeconomists can create models, showing how a certain economy with a certain set of financial institutions would handle a variety of scenarios, putting them to the test.
Macroprudential analysis reminds us of the push-and-pull that’s always present in the macroeconomy. We have regulations, like federal reserve requirements for banks, because maximizing profits is oftentimes at odds with guarding against potential shocks or crises.