Macro-prudential policy Macro-prudential policy is about using bank regulatory tools to address systemic risks that have the potential to damage the financial system, as well as having serious consequences for the domestic economy. A macro-prudential overlay will usually be applied on a temporary basis, for example during an upward asset price cycle, and be applied to all banks.
Perhaps the most dangerous aspect is that the additional competition lowers credit standards – the new competitors look for customers to lend to, and the old institutions preserve their markets by being readier to lend to customers who previously would not have been regarded as creditworthy.