Such a setback can spark off worries for banks that have lent to economic sectors for which the exchange rate, for instance, is a critical element. Indeed, while micro-surveillance of the banking system remains essential, it needs to be topped up by macro-surveillance mechanisms, including macro-prudential policy measures, aimed at reinforcing the battery of defence mechanisms available to central banks.
Economic convention has often stressed on the impact of banks on the macro-economy as the ‘financial accelerator’ which creates financial cycles that may not be in sync with traditional business cycles. On the other hand, macroeconomic measures (e.g., interest rate policy) may create new avenues for financial fragility, including the so-called ‘risk channel’ of monetary policy.