Crucial to the approach to be developed by the Bank is the concept of macroprudential policy. There have been many different attempts to define this concept and the Bank for International Settlements recently referred to “an orientation or perspective of regulatory and supervisory arrangements that is systemic rather than institutional”.
1 A macroprudential approach firstly, has a time dimension which deals with how risk evolves over time, with procyclicality as the primary source of risk. Secondly, it has a cross-sectional dimension dealing with how risk is allocated within the financial system at a given point in time, with common exposures and inter-linkages between financial firms as the primary sources of risk.