Macro Prudential Supervision Tools in the European Banking System

Abstract

The recent financial crisis has reoriented policymakers from micro prudential supervisory to systemic orientated regulation and macro prudential supervisory frameworks. This paper presents a macro prudential approach for monitoring the banking system soundness in the European Union. Using panel data techniques we have estimated the impact of the macroeconomic environment on two key financial soundness indicators of banking systems from 27 countries. Also, we have developed a macro prudential supervisory framework for identification and monitoring the systemic risks, from both backward and forward-looking perspectives.