Rodrigo Vergara: The role of macroprudential policy and monetary policy in safeguarding financial stability Speech by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, at the First Conference “Banking Development, Stability and Sustainability”, organised by the Chilean Superintendency of Banks and Financial Institutions and the Diego Portales University, Santiago, 5 November 2015. *  *  *  I thank Claudio Raddatz y Rodrigo Cifuentes for helping me in the preparation of this note. Good Morning. Before I get to the substance, I want to thank the Superintendency of Banks and Financial Institutions, in particular the Superintendent, Eric Parrado, for inviting me to this conference. On this occasion, I will focus my discussion on macroprudential and monetary policies and their role in safeguarding financial stability. I think that it is from this perspective that I can, as a representative of the Central Bank of Chile, offer a different and complementary view from that of the various representatives of the supervisory institutions gathered here today. I will begin with a brief review of the definition of macroprudential policies and how these policies differ from monetary policy. Then I will discuss the tools and their effectiveness, plus some ongoing debates, particularly about the convenience of using monetary policy for macroprudential purposes, and the institutional organization of the macroprudential objective. Last but not least, I will touch on the Chilean experience with these policies. 1. What is a macroprudential policy?
Figure 7 Foreign credit flows to residents (billions of dollars) 3.0  3.0  2.5  2.5  2.0  2.0  1.5  1.5  1.0  1.0  0.5  0.5  0.0  0.0  -0.5  -0.5  -1.0  -1.0  -1.5  -1.5  -2.0 Jan.07  Jul.07  Jan.08  New credits to banks  Jul.08  Jan.09  -2.0 Jul.09  New credits to non-banks  Net flow (*) (*) Discounting bank and non-bank amortizations from total new credits. Source: Central Bank of Chile. BIS Review 145/2009  9  Figure 8 World growth (1) (annual change, percentage) 15 12 9 6 3 0 -3 -6 -9 -12  80  84  88  92  96  00  04  World at market exchange rate  15 12 9 6 3 0 -3 -6 -9 -12  08  Chile (2)  (1) Gray area shows projections as from 2009. (2) Figures for growth in 2009 and 2010 stand for the midpoint of the range of projections shown in the Monetary Policy Report. Sources: Central Bank of Chile, International Monetary Fund and World Bank.