Financial stability and macroprudential policy

Financial stability and macroprudential policy

One of the Banco de España’s responsibilities is ensuring the stability of the Spanish financial system. To do so, it has an analytical framework and pre-emptive supervision mechanisms, among other tools, and can also adopt macroprudential policy decisions in the banking domain.

Financial stability is key to social well-being. A stable financial system will be able to absorb the impact of shocks and the materialisation of risks without the financial intermediation process being adversely affected and further damage being inflicted on economic activity.

Systemic risk builds up when financial imbalances in the economy grow. Their sharp correction could hamper the financial system’s smooth functioning, thereby affecting economic growth.

Macroprudential policy tools enable prudential authorities to address systemic risk by incentivising economic agents to prevent it from building up. In addition, should systemic risk materialise, the macroprudential tools allow buffers to be built up to absorb and mitigate its effects.