A more automatic system of activation could solve many of these problems, while at the same time introducing an additional automatic stabiliser for the lending and/or the business cycle. However, given that we do not have much experience to date with the working of this tool, the calibration of an explicit policy rule would be premature and the principle of “guided discretion” seems a second-best option. Assesing how to use the different macroprudential tools Let me now turn to the second issue I wanted to tackle. Systemic risk, unlike inflation or the public deficit, is multidimensional and this is why having different macroprudential tools at the disposal of the macroprudential authority is crucial. However, it is not always obvious how to discriminate among the different macroprudential tools, in particular given the potential interactions between them. A first example is the decision to activate the CCyB as opposed to activating a sectoral CCyB. It is perfectly feasible that some credit segments show exhuberant behaviour in the economy without any evidence of the credit cycle being in an expansionary phase. The activation of the countercyclical capital buffer to address a situation of this type does not seem advisable. If this particular activity is sufficiently profitable (at least in the short term) and that is why it is gaining weight in the overall credit portfolio, the increase in the aggregate cost of financing derived from the activation of the CCyB could be counterproductive.
At present, however, credit underwriting standards are not contemplated in European legislation, although some authorities, including the Banco de España, are empowered to set them. I do believe that consideration should be given to including them in future revisions of the European regulation. In my view, this would offer at least three advantages. First, it would allow harmonisation of the different dimensions of the credit standards. Second, it would enable the different jurisdictions to request reciprocity of the measures adopted, which would duly make them more effective. Last but not least, it would allow the European Central Bank to top up the measures, reducing the potential inaction bias of national authorities. On the use of borrower based tools vs capital instruments, it seems reasonable, in my view, that, if credit is showing high and sustained growth over time but without credit standards being relaxed, the ideal would be to increase entities’ resilience using capital instruments. But, even if credit were to show moderate growth, if the conditions for granting these loans are being relaxed (thus increasing the volume of credit at risk of default), it would probably be more efficient to use the borrower-based tools to guarantee sound credit underwriting standards. In any case, our experience shows that, especially at the end of expansionary credit cycles, high increases in the volume of credit tend to go hand-in-hand with a substantial easing of the conditions for granting the loans. Accordingly, both types of tools should perhaps be used simultaneously. With what gradation?