Rather, its implementation has been motivated by the perception that the dynamics of some financial prices or ratios are indications of vulnerabilities in all or part of the financial system that could create problems upon the occurrence of one or more shocks. Therefore, many of the tools used are intended to directly restrict or limit the growth of certain financial ratios or aggregates. I will next review these tools in more detail. 2. Macroprudential tools and their use  As I mentioned earlier, in its quest to reduce the vulnerabilities of the financial system, macroprudential policy has made use of multiple tools in different countries. After several years in place, it has provided some evidence on its frequency of use and its effectiveness. A host of different macroprudential policies have been identified across countries. A possible classification of them (based on Claessens et al., 2013) identifies four groups, according to the nature of their objectives. One group considers measures aimed at reducing vulnerability of borrowers, with caps to Loan-to-value and Debt-to-income chief among them. A second group covers measures that reduce –directly or indirectly – credit growth, where the instruments here are Caps on Credit Growth, Reserve Requirements, Dynamic Loan Loss Provisioning, and Countercyclical Capital Requirements. A third type of policy aims to limit foreign currency risks via Limits to Foreign Currency Lending; while a fourth type considers measures aimed at improving bank buffers, with the policy of Restrictions on Profit Redistribution being implemented in different latitudes.
Thus, such provisions should act as a countercyclical mechanism for accumulating additional provisions when conditions are good and releasing or allocating specific provisions when the times turn bad.” The regulations on required credit risk provisions also introduce some macroprudential aspects as they establish that these must be forward-looking and based on the expected probability of future repayment, not the current level of default or delay, and consider the sensitivity to the cycle of the industry where the debtor operates. In addition, regulations establish a minimum level of provisions that does not vary with the cycle and prevents them from falling excessively during favorable cycles of payment behavior. Finally, after the crises that hit emerging economies in the late 1990s, the law ruled that banks, when assessing the financial situation of the debtors, must consider their currency, term, and interest rate mismatches. The Central Bank’s legal framework also includes a number of powers that can be used to mitigate excessive credit cycles if deemed necessary. For one, the Central Bank Board has the authority to establish reserve requirements over foreign exchange operations. This tool was used in the past (1990s) to control capital inflows to Chile and their impact on macro balances. However, our practical experience with the use of this tool in the 1990s taught us that its success in taming capital inflows is limited because it is always possible to find ways to circumvent the restrictions.