Macroprudential instruments include measures such as countercyclical capital buffers and measures that target the demand for credit, say actions aimed at containing exaggerations on the real estate markets. Caps on the loan-to-value or loan-to-income ratios are examples. So where monetary policy is the hammer in a central bank’s toolkit in relation to financial stability, macroprudential instruments are the scalpel.
Over the past few decades, banks' management of their capital-market risks has evolved from simple methods like the imposition of fixed position limits to increasingly sophisticated techniques that make use of extensive data analyses and a variety of new financial instruments.