The difficulties of assessing potential losses and limited transparency, in the presence of competition and investors’ search for yield, may have encouraged some managers to take on greater risks than would have otherwise been the case. Rewards systems based on short term performance added to these incentive problems.
The conduct of macro-prudential policies will to a large extent also depend on supervisory measures. Accordingly, the macroprudential framework should provide for coordination mechanisms between macro and micro-prudential responsibilities, which should also avoid any potential overlaps or conflicts of interest. The legislation contains a number of provisions that provide the basis for a close institutional collaboration between the ESRB and the ESAs.