Macroprudential Policies in Managing Systemic Risk: A review

The great financial crisis has emphasized the importance of establishing macroprudential architectures to address problems of financial stability. Macroprudential authorities monitor the entire financial system and identify risks and vulnerabilities unlike micro prudential policies that do not incorporate endogenous risk. The adoption of macroprudential tools to mitigate systemic risk has become the norm in many financial markets. This paper covers a wide range of literature review of macroprudential policies from all around the world. Ultimately, it is evident that macroprudential regulation enables long term financial stability of an entire financial system not just an individual entity. In addition macroprudential policy instruments should be paired with financial stability objectives to be able to address the likelihood of systemic risk which is not factored in many institutions.