The macroprudential policy response to the COVID-19 crisis The outbreak of the economic crisis stemming from the COVID-19 pandemic posed an unprecedented challenge, and it did so too from the macroprudential standpoint. As I have attempted to convey in this speech, macroprudential policy was conceived to tackle risks that arise endogenously in the financial system and build up gradually over time. The pandemic has thrown up a radically different crisis scenario, caused by a risk factor exogenous to the financial system. But, in any event, it has had a sudden and profound macrofinancial impact. Against this background, we must accept that the role of macroprudential policy in countering these effects is limited; it is other economic policies (fiscal and monetary policy in particular) that are best suited to combat them. In any event, at the onset of the pandemic, in parallel to the action taken by the monetary and fiscal authorities, numerous announcements of measures ensued at notable speed from the macroprudential authorities.7 Specifically, the main macroprudential instrument subject to these measures was the CCyB which, practically across the board, was drawn down (i.e. returned to its initial level of 0%) in those countries in which it had previously been activated. The aim was to encourage banks to maintain the flow of credit to the economy. In Spain’s case, the CCyB percentage was at 0% before the onset of the pandemic, since no signs of an accumulation of systemic risk had been detected.
However, the possibility of reduced access to external funds, plus the increase in global risk, put pressure on internal financial conditions, causing a significant increase in interest rates and lending standards. At the same time, when future earnings became more uncertain, households and firms significantly reduced their demand for new credit, as revealed by the Banking Credit Survey that the Central Bank conducts on a quarterly basis. Overall, the tightening of financial conditions was not so severe as to hinder banks’ access to external credit or their proper functioning domestically. This was possible also because of a set of measures adopted by the Central Bank and the Ministry of Finance to ensure the proper functioning of the financial system. Nonetheless, due to the higher uncertainty, the sensation that the world economy might enter into a significant depression with huge losses of wealth triggered an unprecedented erosion of global confidence. Growth forecasts began adjusting at great speed. Undoubtedly this hit the behavior of households and firms hard around the world, which stopped their spending plans, or put them on hold indefinitely. Consumers’ and entrepreneurs’ expectations indicators showed a profound weakening in the last quarter of 2008 (Figure 8). A look at durable goods consumption indicators reveals the steep fall in sales levels (Figure 9). All this takes me back to the previous point in my presentation. The dramatic increase in uncertainty that began in September of last year altered people’s behavior substantially, leading to an abrupt and sudden paralysis of the demand for durable goods.