The precise content of the term is not always clearly and precisely defined. In general terms, macroprudential supervision – rather than concentrating on the health and performance of individual financial institutions – aims to limit system-wide distress by calibrating prudential controls accordingly.
Financial stability risk depends on the collective behaviour of institutions – it is “endogenous” – because, collectively, financial institutions can influence asset prices, which can significantly affect the health of the economy as a whole. This, in turn, can produce powerful feed-back effects on the soundness of the institutions.