capital ratios and risk weights) are fixed on a through-the-cycle basis, macro-prudential policy measures are introduced as an overlay when needed in order to mitigate significant but transitory risks affecting the whole financial system.
Macro-prudential policies can achieve this in two ways: first, by increasing the resilience of bank balance sheets to a potential shock (which also gives them a greater capacity to keep lending in the downturn); and second by seeking to dampen a credit and asset price cycle on the upswing in order to reduce the severity of the eventual downturn.