Research project on macroprudential policy in contemporary banking regulation and post-crisis efforts towards financial stability

The research project of Eduard Dzhagityan, Associate Professor of the School of World Economy, HSE, titled: “Macroprudentialism of contemporary banking regulation as a factor of financial stability” received an approval by the academic commission of the Faculty of World Economy and International Affairs, National Research University Higher School of Economics, at the 2016 annual competition for research projects.

The relevance of macroprudential policy studies is closely associated with the issues and challenges of post-crisis recovery amid weaknesses of the link between traditional banking (microprudential) regulation and macro-level dynamics. Taking this into account, Dr Dzhagityan posed an objective to investigate whether and the extent to which macroprudential instruments can minimize systemic risks in the financial sector as well as their validity in securing synergetic effect of international banking regulation reform (Basel III).

The research is focused on the following issues: (1) the role of macroprudential regulation in reducing procyclicality of banking activity, strengthening stress-resilience of credit institutions, and optimization of the current model of international banking regulation (Basel III); (2) how and the extent to which macroprudential regulation and monetary policy can complement each other aiming at higher predictability of shifts in economic cycles; (3) the extent of effectiveness of macroprudential policy mechanisms and instruments amid the conflicting issues of financial globalization; (4) perspectives of the conceptual framework and institutional basis of macroprudential regulation; (5) specifics and perspectives of macroprudential regulation in Russia.

Investigation of macroprudential regulation comes as a response of international banking regulators to the aftermath of the deregulation era and to urgency in strengthening stress resilience of banks necessary to meet the challenges of world economic uncertainties and asymmetries. Contemporary macroprudentialism is driven by volatility of world finances, higher risk associated with systemically important financial institutions (SIFIs) due to their interconnectedness and, accordingly, higher probability of exacerbation and unmanageability of systemic risks. Although macroprudential regulation is already at the spotlight of the post-crisis banking regulation, lacking its completed concept and regulatory standards diminishes its role as a linkage between banking industry and macro level. Ambiguity in interpretation of the macroprudential policy outcomes creates additional complexity in determining risk profile of banks and the banking sector, owing to which this regulatory segment can not yet be considered as a reliable tool for systemic risks diagnostics and minimization of their detrimental effect. In this case, macroprudential regulation requires further conceptualization both in terms of systematization of macroprudential policy aspects in the rapidly changing economic environment and in searching for its consistency with monetary policy.

Upon the results of the research, the author will present proposals on further improvement of macroprudential policy and regulation, including those related to reliability of macroprudential tools and techniques in minimization of systemic risks. It is also expected that core principles of macroprudential regulation will be systematized based on a link between dynamics of the micro- and macro levels in terms of their role in reducing stress in the banking sector and enhancing stress resilience of credit institutions.