Understanding the links At this point, let me remind you of a complicating factor for policy-makers that I mentioned earlier – the fact that macroeconomic and financial objectives aren’t always consistent. It’s clear that financial system policies – including global frameworks such as Basel III and country-specific macroprudential policies – can reduce the likelihood of financial imbalances and crises by reducing tail risks.
Without credit, firms may not be able to invest in productive capital, create new employment or cover ongoing expenses. A healthy credit supply is also important for our monetary policy to filter through to households and firms: it is one of the main ways in which we can affect bank lending conditions and, ultimately, price developments.